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The  History 


OF  THE 


Confederate 
Treasury 


By  ERNEST  A5HTON  SMITH,  Ph.  D. 


The  History  of  the  Con- 
federate Treasury 


A  Dissertation  Presented  to  the  Board  of  University 

Studies  of  the  Johns  Hopkins  University  for 

the  Degree  of  Doctor  of  Philosophy. 


BY  ERNEST  ASHTON  SMITH,  PH.  D., 

M 

Professor  of  History  and  Economics,  Allegheny  College,  Meadville,  Pa. 


[From  Publications  of  the  Southern  History  Association  for 
January,  March,  May,  1901.] 


1901. 


CONTENTS 

Chapter       I.  Creation  of  the  Treasury i 

Chapter     II.  Over-Issue 23 

Chapter  III.  Remedies 35 

Chapter    IV.  Repudiation 64 

Chapter     V.  Collapse 87 

Chapter   VI.  Comparative  Financiering 99 

Chapter  VII.  Limitations  of  the  Treasury 114 


'*. 


The  History  of 
Confederate  Treasury 

By  Professor  Ernest  A*  Smith,  Allegheny  College 

CHAPTER  I.— CREATION  OF  THE  TREASURY. 

The  history  of  war  is  not  alone  the  account  of  the 
movements  of  hostile  men.  Other  agencies  than  bullet 
and  bayonet  have  their  share  in  deciding  the  issue.  Valor 
and  numbers  are  largely  determining  factors,  yet  eco- 
nomic forces  play  a  part  whose  importance  needs  to  be 
carefully  measured.  The  war  chest  of  a  Frederick  the 
Great  indicates  one  method  of  establishing  an  absolute 
guarantee  of  victory.  Modern  conflicts  cause  to  be  levied, 
when  the  emergency  arises,  more  direct  contributions 
from  the  accumulations,  possessions  and  transactions  of 
the  nations'  subjects.  That  people  which  has  the  full  en- 
listment of  its  financial  resources  and  the  mustering  of  its 
complete  industrial  strength  is  well  nigh  thrice  armed. 

The  Confederate  States  of  America  was  naturally  en- 
gaged from  its  inception  in  a  struggle  for  existence.  The 
creation  of  its  Treasury  and  the  establishment  of  a  rev- 
enue were  a  concern  of  vital  consequence,  which  was  to 
be  vastly  emphasized  by  the  mounting  demands  of  a  land 
widely  assaulted.  Thus  the  test  from  the  start  was  the 
more  severe  in  that  the  Treasury  was  engaged  in  deficit 
financiering.  Every  device  which  opportunity  or  neces- 


99724 


sity  could  urge  was  the  subject  of  experiment  by  the  De- 
partment in  its  efforts  to  supply  the  sinews  of  war. 

In  addition  to  the  ordinary  fiscal  operations  there  de- 
volved on  the  officials  the  diverse  and  difficult  problems  of 
loans,  currency,  taxation,  commerce  and  produce  pur- 
chasing. The  study  of  these  activities  suddenly  thrust  on 
the  Treasury  will  portray  phases  of  public  finance,  profit- 
able both  for  instruction  and  for  warning. 

The  Provisional  Congress  of  the  Confederacy  of  six 
Southern  States  met  in  Montgomery,  Alabama,  February 
4,  1861.  Within  four  days  the  Provisional  Constitution 
was  drafted  and  adopted  to  remain  in  force  one  year.  The 
United  States  laws  in  operation  on  November  I,  1860,  and 
not  otherwise  inconsistent  with  the  new  instrument  were 
enacted  as  binding  on  the  Confederacy.  The  following 
day  brought  the  election  of  the  President  and  Vice-Presi- 
dent,  while  the  interval  until  the  inauguration  on  the  i8th 
of  February  was  occupied  by  the  organization  of  an  army 
and  a  navy,  the  adaptation1  of  the  former  national  system 
of  revenue,  the  declaration2  of  a  temporary  internal  free 
trade,  and  other  appropriate  legislation.  Cabinet  officers 
were  to  be  appointed  by  the  President  for  a  term  of  six 
years,  and  the  choice  of  Mr.  Davis  for  his  Secretary  of  the 

SECRETARY  C.  G.  MEMMINGER. 

Treasury  was  announced  February  iQth  to  be  Mr.  C.  G. 
Memminger,  of  Charleston,  South  Carolina.  The  experi- 
ence of  this  gentleman  consisted  of  a  long  service3  in  the 
Legislature  of  his  State,  where  as  chairman  of  the  Ways 
and  Means  Committee  he*  had  charge  of  the  special  finan- 
cial measures,  growing  out  of  the  crisis  of  1837  and  1857, 

"Act  of  Feb.  14,  1861. 

'Act  of  Feb.  18,  1861. 

8  Caper s's  Life  of  Memminger,  pp.  106-186. 

*  Christopher  Gustavus  Memminger  was  born  at  Nayhmgen, 
Wurtemberg,  in  1803,  and  came  to  Charleston  at  the  age  of  four; 
he  was  graduated  from  South  Carolina  College  in  1819. 


relating  particularly  to  banks,  specie  payments  and  note 
issues. 

Mr.  Memminger  was  then  in  the  Provincial  Congress, 
serving  as  chairman  of  the  Committee  on  Commerce.  As 
the  minister  of  finance  he  received  his  appointment  before 
the  Congress  had  formally  created  the  Department,  for 
not  until  February  21  st  was  the  law  framed5  establishing 
and  defining  the  offices.  Under  the  Secretary  were  Comp- 

ORGANIZATION  OF  THE  TREASURY. 

troller,  Auditor,  Register,  Treasurer  and  Assistant  Secre- 
tary. The  Treasury6  in  embryo  at  once  found  a  local 
habitation  for  itself  under  the  charge  of  the  chief  clerk  of 
the  Secretary,  Col.  Henry  D.  Capers.  The  first  requisi- 
tion on  it  to  provide  blankets  and  rations  for  100  men, 
the  first  volunteers,  a  company  from  De  Kalb  county, 
Georgia,  had  to  be  met  by  the  personal  credit  of  the 
Secretary.  The  State  of  Alabama  had  offered  Congress 
a  loan  of  half  a  million  dollars,  but  the  bonds  were  not 
then  available. 

Within  a  short  time  the  organization  of  the  Treasury 
Department  in  its  several  divisions  was  perfected  on  the 
system  devised  by  Alexander  Hamilton.  Several  of  the 
officials  had  served  in  the  United  States  Treasury 'and 
had  resigned  to  tender  their  services  to  the  new  govern- 
ment. Notably  was  Philip  Clayton,  former  assistant  sec- 
retary in  Buchanan's  administration,  who  now  assumed 
the  same  position  at  Montgomery.  C.  T.  Jones  came  to 
the  register's  office  as  chief  clerk,  well  equipped7,  bring- 
ing from  Washington  copies  of  all  the  forms  in  use  in  the 
several  bureaus.  The  second  auditor,  W.  H.  S.  Taylor, 
had  been  twenty-five  years  in  the  employ  of  the  United 
States.  He  said  in  his  first  report  of  December  31,  1861, 

8  Session  I,  Ch.  VIII,  Confederate  Acts. 

'  Capers's  Memminger,  p.  310. 

T  Capers's  Life  of  Memminger,  p.  319. 


that  after  taking  the  oath  to  the  Confederacy,  when  he 
went  back  to  Washington  to  obtain  books,  forms  and 
precedents  he  was  sternly  denied  all  access.  The  first 
auditor  was  Boiling  Baker,  who  continued  in  his  office  to 
the  end.  A.  B.  Clitherall  was  register  and  E.  C.  Elmore, 
treasurer.  There  were  assistant  treasurers  at  New  Or- 
leans, Charleston,  Savannah  and  Mobile.  The  deposi- 
tories performed  essential  functions  of  the  Treasury 
mechanism.  They  were  located  in  the  larger  cities  at  first, 
their  number  being  less  than  forty  for  two  years,  but  in- 
creasing during  the  great  funding  operations  by  three 
hundred  at  a  time.  They  were  in  a  way  the  banking 
branches  of  the  Department  without  the  discount  provis- 
ion. Here  public  moneys  were  received  and  disbursed, 
government  accounts  kept,  taxes  prepaid  for  interest  cer- 
tificates, and  the  various  Confederate  bonds  offered  for 
sale.  Under  the  funding  acts  they  were  to  furnish  the 
government  securities  in  exchange  for  notes. 

The   Congressional  provisions  of  the  first  session  in- 
dicate that  the  financial  system  then  in  view  had  customs 

CUSTOMS  THE  CHIEF  SOURCE  OF  REVENUE. 
duties  for  its  chief  source  of  revenue.  All  United  States 
collectors  who  joined  the  new  government  were  appointed 
with  the  original  powers  and  pay.  Free  admission  until 
March  I5th  had  been  extended  to  all  meats,  grains,  pro- 
visions and  war  material.  Revenue  depots8  were  placed 
after  that  date  in  northern  Alabama,  Georgia  and  South 
Carolina,  but  duties  were  generally  suspended  on  goods 
from  border  States  expected  to  join  the  Confederacy. 
Upon  the  accession  of  Tennessee  and  North  Carolina  the 
interior  customs  offices  were  abolished.  A  provisional 
tariff  of  15%  ad  valorem  on  coal,  iron,  wood  and  paper 
was  adopted  March  I5th,  and  a  duty  of  five  cents  per  ton, 
called  light  money,  was  ordered  on  all  vessels  entering 

8  Order  of  March  21,  1861. 


ports.  The  Federal  blockade  early  interfered  with  this 
policy  of  relying  upon  import  returns,  for  on  July  Qth  the 
collectors  at  all  small  ports  were  dismissed. 

The  first  actual  money  came  to  the  Treasury  March 
I4th,  through  the  Bullion  Fund9  of  $389,267.46,  in  the 
hands  of  the  State  Depository  of  Louisiana,  and  $147,- 
519.66,  the  balance  from  customs  at  New  Orleans,  which 
sums  were  transferred  to  the  Confederate  Government 
by  the  Convention  of  the  State. 

To  meet  rapidly  developing  emergencies, 

THE  FIRST  FINANCIAL  LEGISLATION 
of  Congress  was  the  fifteen  million  dollar  loan  authorized 
February  28th.  The  bonds  were  for  ten  years,  bearing  S% 
coupons,  payable  semi-annually.  This  interest  was  de- 
finitely guaranteed  by  the  pledge  of  the  duty  of  1-8  of  one 
per  cent,  per  pound  on  all .  raw  cotton  exported  after 
August  i,  1861.  The  interest  coupons  were  receivable  for 
this  export  duty.  This  beginning  was  on  a  sound  basis, 
and  the  loan's  success  demonstrated  the  correct  principles 
of  finance  recognized.  But  more  immediate  funds  were 
needed  for  urgent  disbursement  and  the  second10  financial 
legislation  provided  for  the  issue  of 

ONE  MILLION  DOLLARS  OF  TREASURY  NOTES. 
These  were  to  be  one  year  notes,  bearing  $3.65  interest  on 
$100,  similar  to  the  issue  by  the  United  States  under  the 
regime  of  Buchanan's  Secretary  of  the  Treasury,  Howell 
Cobb,  of  Georgia,  now  President  of  the  Provisional  Con- 
gress.11 They  were  made  receivable  for  duties  and  taxes, 
except  export  duty  on  cotton. 

'This  was  coin  kept  at  the  New  Orleans  mint  for  the  con- 
venience of  those  bringing  bullion;  the  fund  had  been  $3,000,000 
up  to  1856. 

10  Act  of  March  9,  1861.     Session  I,  Chapter  XXXII. 

11  The  absence  of  engravers  in  the  South  led  to  a  contract  for 
preparing  the  issue  with  the  American  Bank  Note  Company,  of 
New  York.    There  is  a  current  tradition  that  these  notes  were 
seized  as  contraband  of  war  by  the  United  States  Government,  it 


A 

PLACING  OF  THK  LOAN. 

"A  Loan  for  the  Defense  of  the  Confederate  States," 
subscriptions  of  five  million  dollars  of  the  fifteen  million, 
was  invited  by  Secretary  Memminger  the  day  Congress 
adjourned,  March  i6th.  Leading  business  men  took 
charge  as  commissioners  of  the  loan,  four  from  Louisiana, 
three  each  from  six  other  States.  The  Secretary  worked 
enthusiastically  to  place  the  investment12,  hoping  at  first 
to  dispose  of  a  million  in  New  York.  He  wished  to  get 
a  subscription  twice  the  sum  named13,  believing  that  such 
an  expression  of  confidence  on  the  part  of  the  people 
must  have  marked  influence  on  European  diplomacy. 
The  loan  indeed  went  well,  for  in  two  days  after  the  books 
were  opened  the  five  million  dollars  were  taken  in  Savan- 
nah, New  Orleans  and  Charleston  alone,  while  it  seemed 
the  subscription  would  reach  $8,000,000.  The  banks  were 
largely  the  investors  and  in  addition  furnished  their  notes 
for  the  deposits  on  the  loan  and  again  paid  them  out  on 
the  Treasurer's  draft.  All  the  banks  except  those  of  New 
Orleans  and  Mobile  had  suspended  specie  payments  in 
March.  Rates  of  exchange  already  varied  in  the  several 
States,  and  the  agreement  was  to  make  all  notes  equiva- 
lent to  specie.  The  payments  were  due  by  May  1st,  and  as 
the  affair  at  Fort  Sumter  had  brought  definite  hostilities 
with  increasing  war  estimates,  the  balance  of  the  fifteen 
million  was  called  for  May  7th.  Prominent  commercial 
men  were  invited  to  suggest  plans.  The  advice14  of  James 
D.  Denegree,  president  of  the  Citizens'  Bank,  of  New  Or- 

having  learned  of  the  shipment  by  the  telegraphic  communica- 
tions. However,  on  April  3,  the  letter  book  "B"  of  the  Secretary 
has  the  entry  of  607  impressions  of  each  denomination  of  fifty, 
one  hundred,  five  hundred  and  one  thousand  dollars,  being  sent  to 
the  Treasurer,  E.  C.  Elmore,  and  his  receipt  for  them.  The  two 
or  three  specimens  extant  are  quoted  extravagantly. 

"To  G.  B.  Lamar,  Bank  of  Republic,  N.  Y.  City,  March  23, 
1861,  Letter  Book  "B." 

"To  Edw.  Frost,  of  Charleston,  S.  C.,  April  2,  1861. 

"Letter  of  May  4,  1861. 


/cans,  a  frequent  counselor  of  Mr.  Memminger's,  was 
against  the  reopening  of  the  loan  because  the  people  had 
no  money  and  must  wait  for  their  crops.  The  suggestion 
of  this  banker  was  an  issue  of  $30,000,000  interest  bearing 
Treasury  notes  and  a  direct  tax  payable  before  March  I, 
1862.  He  particularly  urged  that  there  be  "no  half-way 
measures  at  this  time."  The  loan  met  with  a  tardy  re- 
sponse and  on  May  21  st  the  balance  untaken  was  adver- 
tised to  be  five  million.  A  new  appeal  now  included  Vir- 
ginia, Tennessee  and  North  Carolina,  lately  come  into  the 
Confederacy,  and  in  some  States  public  addresses  were 
made  to  induce  subscriptions. 
The  first  public  expression  of  the 

FISCAL  POLICY  OF  THE  GOVERNMENT 
is  found  in  the  report  of  the  Secretary  of  the  Treas- 
ury at  the  second  session  of  Congress.  More  than 
ordinary  financiering  was  warranted  by  the  situation15,  in- 
dicated in  estimates  for  the  year's  expenditures  of  $54,- 
129,464.  The  appropriations  of  the  first  session  had  been 
$17,683,370,  and,  now  within  ninety  days  of  the  formation 
of  the  nation,  the  provisions  of  the  fifteen  million  loan, 
when  realized,  of  the  million  treasury  note  issue  and  of 
the  receipts  of  over  a  million  dollars  from  customs  and 
the  bullion  fund  would  not  be  fully  adequate.  The  past  ex- 
penditures had  been  $993,308.  The  deficit  in  view  was 
$38,000,000.  The  plans16  presented  fairly  foreshadowed 
the  fiscal  practice  of  the  administration.  There  were  four 
chief  recommendations ;  a  tariff  of  I2-|%,  a  war  tax  of 
$15,000,000,  an  issue  of  $20,000,000  Treasury  notes  and  a 
loan  of  $50,000,000  at  home  and  abroad.  Such  a  program 
appears  comprehensive,  but  there  were  lacking  esssential 
elements  of  accuracy,  vigor  and  definiteness.  The  cur- 
tailment of  the  tariff  resource  by  the  possible  success  of 

16  Report  of  May  10,  1861. 

16  Capers's  Life  of  Memminger,  pp.  417-421. 


8 

the  blockade  was  admitted,  yet  it  was  none  the  less  con- 
fidently counted  as  an  available  asset.  The  arbitrary 
figure  of  $235,000,000  was  assigned  to  the  exports  of  the 
country  and  the  value  of  the  imports  calculated  to  be  the 
same,  upon  which  a  tariff  of  $25,000,000  was  apportioned, 
one-half  of  it  to  be  collected  by  February  18,  1862. 

In  this  initial  scheme,  loans  and  direct  taxes  were  recog- 
nized as  the  chief  sources  of  reliance,  yet  the  practical 
concern  appeared  to  be  to  develop  a  resource  that  could 
bring  more  speedy  returns  to  the  exchequer.  The  Secre- 
tary stated  that  all  the  ready  money  of  the  country  until 
the  fall  crops  were  sold  would  be  absorbed  by  the  fifteen 
million  loan,  and  this  induced  him  to  urge  on  Congress 
the  issue  of  Treasury  notes.  The  application  of  this  prin- 
cipal financial  measure  was  to  be  a  matter  of  experiment, 
ascertaining  how  the  public  regarded  the  notes.  The  De- 
partment purposed  to  use  the  issue  at  first  to  anticipate 
other  income,  but  the  final  aim  was  to  familiarize  the 
people  with  this  form  of  money  until  it  had  replaced  every 
other  circulating  medium  and  become  a  permanent  loan. 

The  way  for  the  general  use  of  the  government  paper 
was  naturally  prepared  by  making  Confederate  dues  pay- 
able in  the  notes.  Thus,  Mr.  Memminger  came  to  advo- 
cate taxation,  as  a  means  to  another  financial  end,  rather 
than  as  the  main  support  of  his  whole  system.  He  called 
for  the  sum  of  $15,000,000,  which  was  the  estimated  ex- 
penditure up  to  October  ist,  and  the  implication  was  that 
the  collections  could  be  made  within  four  months.  In 
fact,  the  suggestion  was  to  use  the  State  machinery  or  by 
a  discount  cause  the  States  to  pay  the  whole  quota.  There 
was  a  suggestion  to  Congress  that  the  tax  levy  might  not 
be  needed  in  full,  nor  was  the  placing  of  the  $50,000,000 
loan  on  the  market  urged.  Other  sources  of  revenue  and 
readjustments  through  foreign  aid  were  probabilities  en- 
tertained. This  hope  was  expressed  very  strongly  in  a 


9 

i 

private  report17  of  the  Secretary  to  an  official  of  Con- 
gress.   The  same  document  contains  a  vigorous  and  note- 

CORRECT  PRIVATE  VIEW  OF  TAXATION. 
worthy  appreciation  of  taxation  which  unfortunately  was 
not  emphasized  to  the  same  degree  in  a  paper  of  state 
until  a  year  later.  It  said  "the  most  certain  and  most  en- 
during resources  must  be  sought  out  by  the  Government 
and  taxes  are  the  only  sure  reliance  under  all  circum- 
stances. Loans  come  from  only  a  portion;  duties  reach 
farther,  yet  not  all;  but  direct  taxes  pervade  the  whole 
body  politic  and  bring  forth  the  contributions  of  the  will- 
ing and  the  unwilling."  Here  spoke  the  political  econo- 
mist; his  practice  was  that  of  an  experimenting  public 
servant. 

BONDS  AND  TARIFF. 

The  response  of  Congress  to  the  report  was  the  author- 
ization18 to  issue  $50,000,000  in  &%  bonds,  or  in  lieu  of 
bonds  $20,000,000  non-interest  bearing  Treasury  notes. 
The  bonds  might  be  sold  for  specie,  military  stores  or 
the  proceeds  of  the  sale  of  raw  produce  or  manufactured 
goods.  The  notes  were  receivable  for  all  public  dues  ex- 
cept cotton  export.  The  desire  of  Mr.  Memminger  for 
8%  interest  on  the  notes  in  order  to  have  them  withdrawn 
from  circulation  as  an  investment  "had  been  refused.  The 
guarantees  of  the  issue  were  redemption  in  specie  within 
two  years,  convertibility  into  an  8%  bond,  provided  ex- 
pressly for  the  purpose,  and  a  pledge  of  the  faith  of  the 
Confederate  States  to  raise  sufficient  revenue  to  pay  the 
interest  and  redeem  the  stock.  Congress  named  $10,- 
000,000  as  the  necessary  sum  to  be  raised  within  the  year 
by  direct  taxation  for  a  fund  of  ultimate  redemption,  yet 
the  sole  evidence  of  a  movement  towards  furnishing  this 
guarantee  was  instructions  to  the  Secretary  to  ascertain 

"To  Howell  Cobb,  May  i,  1861. 

1$  Act  of  May  16.    Session  II,  Ch.  XXIV. 


IO 

the  valuation  of  all  the  property  in  the  eleven  States  and 
learn  the  nature  of  the  revenue  systems.  A  complete 
tariff19  measure  was  passed  to  take  effect  August  31, 
1861.  It  was  a  tariff  of  seven  schedules  of  duties, 
comprising  those  on  articles  at  25%,  20%,  10%  and 
5%,  specific  duties  and  the  free  list.  Compared  with  the 
U.  S.  tariff  of  1857,  its  rate  was  15%  on  woolens,  cotton 
goods,  oil,  iron,  coal  and  manufactured  products,  while 
that  of  the  United  States  was  24%.  Congress  adjourned 
May  21,  to  meet  in  the  new  capital,  Richmond,  on  July  21. 

A  NEW  CURRENCY. 

The  Treasury  Department  was  chiefly  concerned  about 
the  establishment  of  the  system20  of  national  currency  and 
comprehensive  and  persistent  plans  to  that  end  were  laid. 
Upon  the  suggestion  of  Mr.  Memminger,  a  convention21  of 
bankers  was  held  in  Atlanta,  Georgia,  in  June.  The  ob- 
ject of  the  meeting  was  expressed  in  the  final  resolution, 
that  all  banks  were  recommended  to  receive  for  all  dues 
the  Treasury  notes  soon  to  be  issued. 

The  administration22  anticipated  a  small  requirement  of 
coin  for  its  purposes  and  pronounced  gold  a  matter  of 
merchandize  and  not  a  true  standard  of  measure,  unless  it 
flowed  freely.  Therefore  new  currency  had  to  be  devised 
for  the  Confederacy.  That  want  made  imperative,  accord- 
ing to  Mr.  Memminger,  the  introduction  and  wide  rise  of 
Treasury  notes.  He  addressed23  the  banks  individually, 
citing  the  action  of  the  Atlanta  convention,  and  arguing 
the  advantage  of  a  currency  circulating  everywhere  and 
sustained  by  the  united  credit  of  the  Confederacy.  He 

"Act  of  May,  1861.    Session  II,  Ch.  XUV. 

80  For  the   present  Treasury  needs  and  owing  to   difficulty   in 
printing  the  notes  authorized,  the  banks   furnished  the  Govern- 
ment a  temporary  loan  of  $5,000,000  of  their  several  note  issues. 

81  G.  B.  Lamar,  of  Savannah,  Ga..  was  president  of  the  conven- 
tion and  J.  S.  Gibbs,  of  Columbia,  S.  C.,  secretary. 

"To  E.  Starnes,  of  Augusta,  Ga.,  May  24,  1861. 
13  Circular  to  banks  of  June  17,  1861. 


II 

assured  them  that  the  notes  would  be  safeguarded  by  an 
early  levy  of  a  direct  tax  and  also  be  fundable  in  8% 
bonds,  preventive  of  depreciation. 

LOYALTY   OF   THE   BANKS   AND   CAPITALISTS. 

The  banks  of  New  Orleans  and  Mobile  alone  refused 
to  make  the  new  money  paramount,  but  in  August  Mobile 
suspended  specie  payment  and  the  Canal  and  Citizens' 
banks  of  New  Orleans  were24  besought  by  the  Secretary, 
and  the  aid  of  the  Governor  and  Attorney  General  of 
Louisiana  was  invoked  to  have  them  accept  the  Treasury 
notes  as  the  currency  of  the  land.  They  were  told  that 
they  could  keep  their  specie  in  their  vaults,  but  the  good 
of  the  country  demanded  that  they  place  their  bank  notes 
and  those  of  the  Confederacy  on  the  same  footing.  Ac^ 
cordingly  in  Septembei  they  consented  to  do  that  to  which 
the  stress  of  conditions  would  have  eventually  led.  Their 
patriotism  is  well  indicated  in  the  statement25  of  James  D. 
Denegree,  that  in  a  conflict  between  the  credit  of  the 
banks  and  of  the  Government,  the  banks  must  see  their 
own  interests  destroyed,  but  the  credit  of  the  nation  must 
not  be  restricted  nor  the  banks  incur  the  responsibility  of 
defeating  the  resolution.  No  authorities  could  ask  for 
more  unquestioning  support  and  the  loyalty  of  the  credit 
organizations  of  the  towns  and  cities  manifested  itself 
largely  irrespective  of  true  economic  considerations. 

MATERIAL  BASIS  FOR  TREASURY  NOTES. 
The  third  session  of  Congress,  assembling  in  Richmond, 
was  met  with  the  announcement  of  the  purpose  to  estab- 
lish a  national  currency.  Expressed  apprehensions  of 
danger  were  answered26  by  a  reference  to  the  banking 
capacity  of  the  South.  From  1852-8,  the  circulation  and 
deposits  in  eight  Confederate  States  where  banks  we're 

"Letter  of  Sept.  11,  1861. 

"  Letter  of  Oct.  2,  1861,  to  Memminger. 

"  Special  report  of  Memminger,  July  20. 


12 

located  amounted  to  $85,000,000,  with  coin  of  $18,500,000. 
There  was  estimated  to  be  $200,000,000  on  interest  out- 
side of  the  banks,  whose  capital  aggregated  $85,000,000. 
The  Secretary  reasoned  that  the  country  could  easily  sus- 
tain $100,000,000  of  Treasury  notes,  especially  if  a  large 
portion  of  them  being  made  interest  bearing  should  come 
to  take  the  place  of  an  investment.  Their  use  as  money 
was  conceived  to  increase  their  value  by  one-half  and  the 
figure  of  safe  absorption  of  notes  was  forthwith  raised  to 
$150,000,000.  The  recommendation  of  the  report  was  for 
notes  to  bear  two  cents  interest  per  day  on  the  hundred 
dollars.  The  demand  was  urgent  since  the  one  million  of 
March  9  had  been  issued  and  the  fifteen  million  loan  was 
still  going  slowly  with  a  balance  of  five  million  untaken. 
For  immediate  claims  one  million  more  of  the  interest  notes 
of  March  9  was  ordered.27  Congress  was  planning  larger 
legislation,  which  was  guided  by  the  statistics28  submitted 
by  the  Treasury  as  a  result  of  the  inquiry29  directed  to- 
ward revenue  raising  in  the  previous  session.  By  this 
showing  the  gross  valuation  of  property  in  the  eleven 
States,  based  on  a  previous  general  statement  of  the  U.  S. 
Treasury, -was  $5,202,176,109.  Taking  as  a  basis  the  arti- 
cles taxed  in- most  of  the  States,  the  valuation  of  $4,632,- 
160,541  was  given.  Instead  of  $10,000,000  as  before,  now 
a  tax  of  $25,000,000  was  advised  by  means  of  a  levy  of  54 
cents  on  the  $100  of  the  value  of  slaves,  real  estate,  mer- 
chandise/bank,  railroad  and  other  stocks  and  money  at 
interest.  In  this  scheme  an  ad  valorem  was  preferred  to  a 
direct  tax  and  a  different  basis  than  that  of  the  revenue 
systems  of  the  States  was  advocated. 

The  extent  of  appropriations  and  estimates  warranted 
another  appeal30  from  Mr.  Memminger.     $50,000,000  of 

"  Act  of  July  24,  1861. 

M  Report  of  State  Auditors,  July  24. 

"Act  of  May  16. 

*°  Special  report  of  July  29. 


the  amounts  voted  by  the  First  and  Second  Sessions  re- 
mained to  be  met  and  the  increase  of  the  estimates  to 
$100,000,000  emphasized  the  defects  of  bonds  as  an  avail- 
able resource.  This  was  the  time  and  place  to  substitute 
Treasury  notes  for  the  bank  circulation  in  part ;  at  least 
one-half  ought  to  be  replaced,  the  Secretary  said,  to  the 
extent  of  $43,000,000.  He  had  proposed31  to  set  apart 
the  crop  subscriptions,  now  being  taken,  as  additional 
security  for  the  notes,  declaring  the  value  of  such  a  basis 
was  second  to  coin  itself.  But  the  banks  in  convention 
assembled  in  Richmond,  July  24,  assured  him  that  they 
did  not  require  the  pledge  of  the  proceeds  of  the  produce 
subscribed.  This  popular  movement  of  the  planters  was 
then  used  in  another  form  for  Treasury  purposes  and  a 
plan32  outlined,  which  was  to  be  worked  extensively  at  a 
later  time,  of  issuing  bonds  in  exchange  for  crop  sub- 
scriptions. 

THE  FIRST  LARGE  FINANCIAL  LEGISLATION 
The  first  large  financial  legislation  of  the  war  was  the 
One  Hundred  Million  Loan  of  August  19,  1861.  The 
bonds  were  for  twenty  years,  bearing  S%  interest,  and  the 
shorter  term  bonds  of  May  16  were  revoked  in  favor  of 
the  new  stock.  They  were  to  be  issued  for  funding  Treas- 
ury notes,  for  exchange  for  the  proceeds  of  the  sale  of  raw 
produce  and  for  the  purchase  of  military  stores.  The 
notes  were  non-interest  bearing  and  payable  six  months 
after  peace  was  declared.  There  was  a  limit  placed,  in- 
cluding former  issues,  of  $100,000,000.  The  loan  was  ac- 
companied by  the  first  war  tax,  which  was  expected  to 
pay  the  interest  on  the  public  debt  and  establish  a  sinking 
fund  to  discharge  the  principal.  The  rate  was  fifty  cents 
on  $100;  the  assessment  was  set  for  November  i,  1861, 
and  collections  by  May  I,  1862.  This  was  a  much  longer 

81  Report  of  July  20. 
88  Act  of  August  19. 


14 

period  than  the  Secretary  had  once33  calculated  and  the 
realization  was  to  extend  it  farther.  The  Department 

RUNNING  THE  PRINTING  PRESSES. 

was  now  concerned  with  the  printing  of  the  Treasury 
notes.  The  banks  had  been  supplying  the  currency  of  the 
Government  since  May,  when  the  issue  of  $20,000,000  was 
authorized,  loaning  their  notes  at  5%. 

The  intention  had  been  to  pay  back  the  loan  in  its  own 
notes  within  three  months.  Contracts34  had  been  made 
with  S.  Schmidt,  of  New  Orleans,35  but  he  proved  most 
unsatisfactory  and  his  output  was  very  small,  resulting  in 
his  dismissal  in  October.  Meanwhile  Hoyer  and  Ludwig, 
of  Richmond,  had  been  engaged  on  the  notes,  and  by  the 
latter  part  of  August36  were  furnishing  almost  $2,000,000 
a  week.  The  rapid  increase  of  output  was  indicative  of 
the  demand  as  well  as  of  the  workings  of  the  policy  of 
note  supply.  On  October  I,  a  contract  was  let  for 
$600,000  a  day,  and  by  November  the  daily  manufacture 
of  money  was  $800,000,  yet  the  most  serious  difficulties 
had  confronted  the  Bureau  of  Engraving  and  Printing.37 
There  had  not  been  a  single  bank  note  engraver  in  the 
South,  nor  was  bank-note  paper  manufactured  therein. 
Lithographs  were  used  in  place  of  steel  engravings,  and 
the  first  workmen  came  from  Baltimore,  as  did  the  sup- 
plies of  paper.  But  the  Federal  pickets  could  not  always 
be  evaded,  and  soon  three  local  manufactories  of  paper 
were  started.  The  steady  increase  of  requisitions  on  the 
Treasury  could  not  be  met  with  sufficient  notes  from  the 

88  Report  of  May  10,  1861. 

14  Letter  to  A.  B.  Clitherall,  May  7. 

88  The  mint  at  New  Orleans  had  coined  in  April  four  half-dollars 
and  then  stopped  for  lack  of  bullion.  On  reverse  were:  Goddess 
of  Liberty,  13  stars,  1861;  on  obverse:  shield  with  7  stars,  a  liberty 
cap  and  entwined  around  it  stalks  of  sugar  cane  and  cotton;  in- 
scribed with  "Confederate  States  of  America." 

88  Reports  of  Thompson  Allan,  clerk  of  Bureau. 

"The  first  bonds  were  prepared  in  Charleston  and  New  Or- 
leans. 


presses,  so  that  by  October  24,  $12,000,000  of  claims  were 
unpaid,  and  a  second  resort  was  had  to  the  banks  of  South 
Carolina  and  Georgia  for  a  loan  of  ten  millions  of  their 
notes. 

By  the  time  of  the  installation  of  the  permanent  con- 
stitution in  February,  1862,  this  defect  had  been  remedied 
and  Treasury  notes  held  the  field  alone. 

SUBLIME  FAITH  IN  PAPER  MONEY. 
The  dominance  of  the  Government  credit  instruments 
was  hastened  by  the  action  of  the  fifth  and  last  session 
of  the  Provisional  Congress,  which  met  November  18. 
Appropriations38  had  reached  $124,301,038,  although  the 
estimates  of  six  months  earlier  were  $71,812,834.  Ex- 
penditures had  been  $70,666,715,  while  receipts  were  $61,- 
870,216  of  which  $18,000,000  was  from  loans.  Up  to  this 
date,  $32,000,000  in  notes  had  been  issued  and  the  Secre- 
tary asked39  for  authority  to  issue  $50,000,000  in  excess 
of  the  $100,000,000  of  the  Act  of  August  19.  But,  when 
additional  estimates  for  $99,000,000  were  submitted  on 
December  10,  he  demanded40  $100,000,000,  boldly  assert- 
ing that  the  scheme  of  finance  adopted  by  Congress 
looked  to  Treasury  notes  as  the  supply  of  means  for  pub- 
lic expenditures.  He  proposed  no  measures  looking  be- 
yond April  i,  1862,  and  expressed  faith  in  the  attempted 
blockade  being  set  aside  and  the  present  embarrassments 
relieved.  The  attitude  of  Mr.  Memminger  is  revealed  in 
a  communication41  to  G.  A.  Trenholm,  of  Charleston,  who 
became  his  successor  in  the  final  year  of  the  Confederacy. 
He  said,  "our  Treasury  cannot  be  guided  by  experience, 
since  history  furnishes  no  parallel  of  circumstances.  It 
must  feel  its  way."  His  November  report  showed  a  reali- 
zation of  the  perils  of  redundancy  and  sounded  that  help- 
less warning  which  was  the  characteristic  feature  of  sub- 

38  Capers's  Life  of  Memminger,  pp.  422-428. 

"  Report  of  Nov.  20,  1861. 

40  To  Howell  Cobb,  Dec.  10,  1861.- 

"Letter  of  Feb.  17,  1862,  Letter  Book  "C." 


i6 

sequent  official  utterances.  Congress  began  in  this  last 
session  its  oft  repeated  practice  of  -raising  the  limit,42  vot- 
ing $50,000,000  additional  notes. 

THE  DELUSION  OF  FUNDING. 

Among  the  measures  adopted  to  sustain  the  value  of 
the  notes,  funding  was  judged  an  absolute  specific  from 
the  very  start,  nor  was  this  delusion  lost  under  changed 
conditions  and  unfavorable  experiences.     The  $20,000,000 
notes  of  the  Act  of  May  16  could  be  funded  in  ten  year 
bonds,  bearing  8%  interest  which  were  re-exchangeable  for 
notes.     This  was  an  experiment  and  the  banks  were  large- 
ly induced  to  fund  accordingly.     The  $100,000,000  note 
issue  of  the  Act  of  August  19  was  fundable  in  8%  bonds, 
running  from  three  to  eighteen  years,  excepting  $20,000,- 
ooo,  which  could  be  exchanged  for  ten-year  bonds  of  J% 
interest,  reconvertible  in  notes.    The  demand  for  this  J% 
security  was  so  strong,  exhausting  the  amount,  that  in 
the  November  Congress,  the  Department  asked  permis- 
sion to  lower  the  interest  further,  and  a  new  device43  took 
the  place  of  the  bond,  a  6%  call  certificate.     The  amount 
of  these  was  to  be  $30,000,000  and  their  operation  was  to 
convert  the  depositories  into  savings  banks,  where  Treas- 
ury notes  were  deposited  and  drew  6%  interest,  until  they 
were  again  brought  out  into  the  circulation.     In  address- 
ing44 President  Davis,  the  Secretary  stated  that  the  time 
for  the  payment  of  these  bonds  was  not  material  as  their 
exchange  for  currency  would  likely  be  required  before 
the  time  fixed  for  payment,  and  thus  be  a  class  of  bonds 
outside  the  general  funded  debt.     Twenty  years  was  fixed. 
While  the  purpose  avowed  for  these  certificates  was  the 
absorption  of  notes,  yet  at  best  it  could  furnish  only  a 
temporary  check  on  redundancy,  since  there  was  to  be  a 
return  sooner  or  later  into  notes. 


42  Act  of  Dec.  24,  1861. 

48  Act  of  Dec.  24.     Session  V,  Chapter  XXVI. 

44  Letter  of  Jan.  7,  1862. 


17 

STRENGTHENING  PUBLIC  CREDIT. 

Another  measure  that  had  given  credit  to  the  Govern- 
ernment  paper  was  its  acceptance45  for  all  public  dues  ex- 
cept the  export  duty  on  cotton,  which  was  reserved  to 
sustain  the  fifteen  million  loan.  It  was  particularly  en- 
joined that  the  war  tax46  should  be  paid  in  Treasury  cur- 
rency. The  proposition  to  make  the  notes  a  legal  tender, 
which  was  to  be  a  contention  in  vain  for  four  years,  was 
early  discussed.  In  its  third  session  Congress47  had  re- 
ferred the  matter  to  its  finance  committee  on  the  motion 
of  A.  H.  Garland,  of  Arkansas ;  and  two  weeks  later  on 
the  motion  of  James  A.  Seddon,  of  Virginia  to  make 
Treasury  notes  receivable  in  payment  of  any  debt  due 
corporations  or  individuals,  the  vote  was  adverse. 

A  third  plan  to  strengthen  the  credit  of  the  Government 
was  devised  out  of  the  liberty  allowed  Mr.  Memminger 
to  decide  how  he  should  pay  the  interest  on  the  funded 
debt.  He  announced  on  December  19  that  coin  would 
be  used,  expecting  thereby  to  increase  the  desire  to  fund 
notes  into  bonds.  He  asked48  a  loan  of  $1,000,000  from 
the  New  Orleans  banks  for  this  purpose.  Although  James 
D.  Denegree  arranged  to  get  the  amount  for  him  by  Janu- 
ary 16,  1862,  it  was  done  with  a  sharp  protest49  against 
the  method  of  financiering.  The  banker  contended  that 
the  coin  received  by  bond  holders  would  be  put  on  the 
market  and  go  from  the  country.  He  said  that  such  a 
policy  of  payment  could  not  be  maintained  over  six 
months  unless  the  blockade  was  lifted.  Then  a  resort  to 
the  payment  of  interest  in  notes  would  make  a  worse  con- 
dition than  the  one  sought  to  be  avoided.  The  prediction 
was  confirmed  and  specie  gathered  later  went  for  supplies 
to  preserve  national  existence. 

48  Acts  of  March  9,  May  16,  August  19,  1861. 

49  Act  of  August  19. 

47  July  19. 

48  Letter  of  Dec.  4,  1861. 
48  Letter  of  Jan.  16,  1862. 

2 


i8 

The  legislative  and  financial  policy  of  the  Provisional 
Congress  employed  bonds  and  stocks  mainly  for  the  sup- 
port of  the  Treasury  notes.  The  initial  fifteen  million 
loan  was  not  completed50  until  October,  the  banks  being 
pressed  into  subscribing  the  balance.  A  very  small  por- 
tion51 of  the  one  hundred  million  loan  was  placed  within 
the  year.  The  safety  fund  provision  attached  to  the 
bonds  promised  an  inviting  guarantee.  This  divided  the 
principal  into  thirty-six  installments,  beginning  January  i, 
1864,  and  a  fixed  sum  was  to  be  appropriated  to  pay  semi- 
annually  the  whole  interest,  together  with  the  portion  of 
the  principal.  Though  this  stock  had  not  been  sold  di- 
rectly to  the  public,  it  was  hoped  that  it  would  be  largely 
available  through  the  agency  of  the  produce  loan. 

CROPS  AS  A  FINANCIAL  BASIS. 

The  subscription  of  crops  was  a  natural  device  for  an 
agricultural  people,  especially  during  the  season  when 
there  was  little  ready  money.  The  second  session  of  Con- 
gress had  looked  towards  this  resource  when  it52  provided 
bonds  to  be  sold  for  the  proceeds  of  the  sale  of  raw  pro- 
duce and  of  manufactured  goods.  Treasury  circulars  of 
June  18  and  26  emphasized  this  use  of  bonds  and  called 
for  subscriptions.  This  notice  was  directed  to  reach  the 
growing  crop  of  cotton  and  a  response  of  500,000  bales 
was  estimated.  By  August  several  sections  began  to 
make  liberal  returns,  the  planters  offering  one-third  to 
one-half  their  yield.  In  other  places,  no  support  was 
given  and  agents  of  the  Treasury  were  sent  to  address  the 
people  on  the  loan.  Various  conventions  gave  enthusias- 
tic approval.  James  E.  B.  DeBow53  was  made  clerk  of  the 
Produce  Loan  Bureau,  and  in  the  November  report54  to 

80  Circular  of  Oct:  10,  1861. 

61  Letter  to  E.  Stearns,  Nov.  20. 

"  Act  of  May  16. 

"August  3,  1861. 

M  Capers's  Memminger,  p.  425. 


19 

Congress  the  subscriptions  when  paid  were  conjectured 
to  reach  likely  $40,000,000.     The  patriotism  of  this  official 
had  led  him  to  the  work  gratuitously,  but  on  January  20, 
1862,  he  turned  over  the  office  to  a  salaried  chief  clerk, 
A.  Roane.     At  that  time  the  subscriptions  were  approxi- 
mately placed  at  418,000  bales  of  cotton,  7,000  hogsheads 
of  tobacco,  3*500  hogsheads  of  sugar,  3,500  barrels  of  mo- 
lasses and  $500,000  cash.     But  there  had  been  no  proceeds 
realized  by  the  bureau  and  sales  depended  upon  the  open- 
ing   of    the    markets,    which    was    confidently    expected 
through  the  lifting  of  the  blockade  within  the  year.    While 
the  organization  for  subscription  had  been  fairly  effective, 
the  system  for  collection  required  more  detail  and  was 
planned  under  the  direction   of   the  register's  office,   of 
which  the  bureau  remained  a  division  until  1863.    General 
agents  were  located  in  the  larger  cities  where  subscrip- 
tions were  payable  and  their  subordinates  were  scattered 
through  the  adjoining  territory  to  solicit  signing  of  addi- 
tional produce  and  attend  to  the  collection.    The  practice 
was  for  the  planter  to  indicate  the  portion  to  be  given, 
name  the  place  and  time  of  delivery  and  allow  his  factor 
to  pay  the  proceeds  to  the  agent,  getting  in  turn  a  receipt 
for  the  8%  bonds. 

GOVERNMENT  LOAN  ON  COTTON. 

As  nineteen-twentieths  of  the  products  offered  was  cot- 
ton, this  gave  force  to  the  sentiment  in  favor  of  Govern- 
ment control  of  this  resource.  A  common  theory65  of 
subsequent  years  has  been  that  the  failure  to  seize  the 
cotton  made  the  fatal  economic  error  of  the  first  year  of 
the  war ;  even  in  the  second  year  certain  newspapers  urged 
purchase  by  the  Confederacy.  But  the  early  advocates  of 
a  Government  loan  on  cotton  were  of  two  classes,  those 
who  favored  it  as  a  basis  of  the  financial  system  and  the 
planters  who  wanted  aid  for  themselves  privately.  The 
earliest  advocate  of  the  first  plan  was  C.  T.  Lowndes,  of 

"Joseph  E.  Johnston's  Military  Operations;  Pollard's  Lost  Cause. 


20 

Charleston,  who  urged56  securing  trie  staple  by  an  ad- 
vance of  five  cents  a  pound  and  issuing  notes  on  it  as  a 
real  source  of  value.  The  cotton  was  to  be  kept  with  the 
Government  loan  on  it  until  the  close  of  the  war,  when 
the  advance  would  be  refunded.  Lowndes  placed  this  plan 
above  the  produce  loan  notion  of  that  date,  which  could 
yield  no  money  until  after  the  blockade  unless  there  was 
a  forced  sale.  The  Secretary  promptly57  opposed  gov- 
ernment purchase.  His  argument  was  that  the  circula- 
tion just  established  would  be  ruined  by  the  amount  of 
notes  needed  to  buy  cotton.  Notes  paid  for  a  pledge  of 
cotton  must  be  an  exchange  of  cash  for  a  lien,  and  when 
the  cotton  was  sold,  the  Government  had  its  notes  back 
and  was  where  it  started.  He  judged  there  wa's  no  ad- 
vantage in  the  control  of  cotton  since  notes  were  deemed 
adequate  for  all  demands.  Again,58  he  said,  the  notes 
were  already  currency  by  the  banks'  action  and  required 
no  exchange  for  cotton  to  sustain  them. 

The  second  class,  which  wanted  advances  on  their  staple 
to  promote  commercial  activity,  was  a  very  large  one, 
and  in  a  communication59  to  General  W.  W.  Hardie,  of 
Manor,  S.  C.,  Mr.  Memminger  seemed  to  incline  to- 
ward it.  Shortly,  though,  he  took  a  decided  stand  against 
this  plan,60  asserting  that  the  sooner  planters  learned  to 
rely  on  themselves,  and  not  the  Government,  the  quicker 
their  relief.  The  true  remedy  was  to  divert  labor  and 
capital  to  raising  supplies  and  furnishing  food,  and  such 
advances  as  were  necessary  could  be  obtained  from  pri- 
vate sources.  The  New  Orleans  mentor61  had  spoken 
against  the  scheme  of  public  advances  saying  that  was  the 
function  of  banks  or  States.  A  Treasury  circular62  was 

89  Letter  of  June  13,  1861. 

67  Letter  of  June  20. 

"  To  W.  C.  Bibb,  of  Montgomery,  Ala.,  June  21. 

"  Letter  of  July  9,  Letter  Book  "C." 

•°To  R.  D.  Powell,  of  Columbus,  Miss.,  Oct.  g,  1861. 

"Letter  of  Denegree,  Oct.  2. 

81  Oct.  15;   published  in  Capers's  Memminger,  pp.  352-5. 


21 

finally  sent  to  the  commissioners  of  the  produce  loan, 
which  announced  the  decision  that  such  material  aid  as 
Government  purchase  was  unconstitutional,  power  exist- 
ing only  for  borrowing  and  not  lending.  The  one  to  two 
hundred  million  of  notes  proposed  for  the  advance  must 
disarrange  all  contracts  and  prices,  making  the  Govern- 
ment the  largest  loser.  The  history  of  all  such  public  un- 
dertakings was  said  to  advise  against  the  course. 

COTTON  THROUGH  THE  BLOCKADE. 
A  subsequent  use  made  of  cotton  by  the  Confederacy 
was  to  purchase  it  for  shipment  through  the  blockade  to 
furnish  specie  in  Europe  for  absolutely  essential  war  sup- 
plies. This  practice  began  as  soon  as  specie  was  hoarded 
and  rates  of  exchange  increased.  John  Frazer,  of 
Charleston,  was  directed,  November  20,  1861,  to  buy  cot- 
ton and  ship  by  the  "Fingal"  to  Liverpool.  In  response 
to  an  inquiry  of  Congress,  February  12,  1862,  as  to  this 
purchase,  it  was  learned  that  after  the  "Fingal"63  was 
loaded,  it  was  so  effectually  blockaded  at  Savannah,  that 
the  cotton  was  returned  to  the  interior.  Movements64 
were  made  looking  to  the  purchase  of  cotton  in  Texas 
and  shipment  to  Mexico  because  of  this  failure  in  the 
East.  Afterwards,  large  operations  were  begun  under 
the  plan  established  by  the  First  Permanent  Congress. 

SUMMARY  OF  THE  FIRST  YEAR. 

The  change  from  the  provisional  constitution  to  the 
permanent  on  February  18,  1862,  was  accompanied  by 
the  assembling  of  a  new  congress  of  two  branches  instead 
of  one,  but  the  administrative  personnel  of  the  Govern- 
ment was  not  altered.  President  Davis  in  his  message85 
said  that  the  financial  system  of  the  first  year  had  proven 
adequate  to  supply  all  wants,  although  there  had  been  a 

"Afterwards  was  converted  into  ironclad  Atlanta. 
"Letter  to  Secretary  of  War  Benjamin,  Nov.  23,  1861. 
"February  18,  1862. 


22 

vast  increase  of  expense  for  defense.     He  found  much 
gratification  in  an  unimpaired  credit  and  the  absence  of 
a  floating  debt.    Yet  such  a  flattering  condition  was  pos- 
sible only  because  this  was  the  year  of  the  organization 
of  the  Confederate  finances.    The  issue  of  Treasury  notes 
was  bordering  on  $125,000,000,  with  the  limit  of  $150,- 
000,000,  set  by  Congress,  not  far  away.     The  notes  had 
displaced  the  circulation  of  the  banks,  which  on  January 
I,    1859,    aggregated    only   $60,000,000,    the  total    notes, 
deposits  and  coin  reserve  in  the  South  having  been  $100,- 
000,000.     Mr.   Memminger's   estimate   in  July   had  been 
that  the  country  could  safely  float  $150,000,000  of  notes, 
and  to  that  extent  the  financial  policy  thus  far  pursued 
may  be  considered  a  positive  gain.     But  the  conduct  of 
the  Department  in  the  past  year  did  not  presage  favor- 
ably for  the  maintenance  of  the  bounds  appointed  to  the 
paper   issue.      Depreciation   began   to    show   itself   quite 
plainly.     In  the  early  months,  the  paper  money  was  at 
actual  par  with  gold ;  in  August  it  was  at  &%  discount,  at 
15%  in  November,  and  25%  in  February.     The  receipts 
from  loans  were  less  than  $40,000,000.     The  tariff  law  of 
May  21  st,  which  had  been  carefully  framed  and  was  cal- 
culated to  bring  in  a  revenue  of  $12,500,000,  was  practi- 
cally inoperative  on  account  of  the  blockade.     The  re- 
ceipts66 of  duties  from  July  1st  to  December  3ist  amounted 
to  $63,138,  while  the  expenses  of  the  custom  houses  for 
the  same  period  was  $63,774.     The  total  customs  of  the 
year  were  $1,270,875,  of  which  $742,475  came  in  within 
two  months  after  the  formation  of  the  Confederacy.   The 
war  tax  was  not  yet  collectible  and  notes  and  bonds  had 
furnished  98  1-3%  of  the  total  receipts.     The  estimates 
for  this  year  had  been  $72,000,000,  but  the  expenditures 
had  proven  to  be  $165,000,000.    The  certainty  of  a  steady 
increase  of  demands  with  a  protracted  war  and  a  con- 
tinued blockade  faced  Congress  and  the  Treasury  Depart- 
ment. 

M  Report  of  Jan.  13,  1862,  Treasury  Book  "C." 


OF  THE 

UNIVERSITY 

CHAPTER  II—  OVER-ISSUE.   V 


The  Secretary  of  the  Treasury67  formulated  for  the 
new  Congress  after  it  had  been  in  session  almost  a  month 
a  financial  program  that  was  mainly  an  enlarged  applica- 
tion of  his  previously  established  policy.  The  expendi- 
tures were  estimated  for  the  next  nine  months  at  $215,- 
000,000.  Authority  was  asked  to  increase  the  issue  of 
notes  by  $50,000,000,  newly  fixing  a  limit  of  $200,000,000. 
The  report  recognized  such  issues  as  the  most  dangerous 
of  all  methods  of  raising  money  'and  accurately  described 
the  deplorable  possibilities  which  in  less  than  two  years 
were  made  real.  Although  a  currency  having  value  only 
in  its  own  country  is  peculiarly  liable  .to  lose  its  security 
against  excess,  every  addition  becoming  permanent  cir- 
culation, the  confidence  of  the  administration  was  not 
shaken  in  the  efficacy  of  8%  bonds  and  call  deposits  to 
keep  down  redundancy.  However,  it  was  plain  that  the 
credit  of  the  notes  would  be  completely  shattered  if  they 
were  used  for  all  expenditures. 

A  leading  recommendation  then  was  that  supplies 
largely  be  procured  in  exchange  for  bonds.  Loans  were 
not  being  placed  directly  with  the  public  to  any  extent, 
and  both  for  investment  and  for  payment  on  produce 
Congress  was  shown  there  must  be  the  certainty  of  pro- 
vision for  the  interest.  If  loans  were  to  be  enlarged,  the 

SMALiv  AND  INEFFICIENT  TAX. 

taxes  must  be  enlarged.  The  next  recommendation  then 
was  an  increase  of  the  present  moderate  tax  rate  of  a 
half-cent  on  the  dollar,  yet  there  was  not  that  insistence 
upon  such  a  measure  which  the  occasion  warranted.  A 
possibly  difficulty  had  now  arisen  in  the  fact  that  the  per- 
manent constitution68  had  a  different  clause  on  the  tax- 

*7  Report  of  March  14,  1862,  Capers's  Memminger,  pp.  429-437. 
"Art.  I,  Sect.  II,  Par.  3. 


24 

ing  power  from  that  of  the  provisional  constitution,69 
whose  only  requirement  was  that  the  taxes  should  be 
uniform.  The  new  provision  was  similar  to  the  one  pre- 
vailing in  the  United  States  Constitution,  that  direct  taxes 
and  representation  shall  be  levied  according  to  population. 
This  difference  could  be  met,  the  Secretary  suggested,  by 
assuming  the  assessments  already  made  under  the  war 
tax  of  August,  1861,  as  a  basis  for  the  distribution  of  the 
proposed  increased  tax,  as  soon  as  Congress  decided  what 
aggregate  amount  must  be  raised. 

The  preparations  for  laying  the  war  tax  and  the  ma- 
chinery for  its  collection  were  arranged  with  a  hesitation 
and  lack  of  dispatch  that  marked  a  people  not  accustomed 
to  general  government  revenues.  The  auditors  of  the 
several  States  had  been  asked  May  21,  1861,  to  report  the 
value  of  their  property  to  the  Confederate  States  Treas- 
ury. Two  months  later  the  results70  were  laid  before 
Congress.  Of  the  total  valuation  of  $4,632,160,500,  real 
estate  and  negroes  were  respectively  $1,758,238,000,  and 
$2,142,635,000  constituting  85%.  There  had  been  no 
revenue  system  of  the  States.  Taxes  on  slaves  were  both 
by  poll  and  ad  valorem.  The  assessment  was  adopted71  of 
$600  each  on  the  three  million  and  a  half  blacks.  There 
had  been  no  returns  of  land  in  South  Carolina  since  1840, 
so  the  listed  property  was  assigned  an  increase  in  value 
°f  75%-  The  ad  valorem  tax  was  employed  instead  of  the 
direct,  since  it  lightened  the  burden  upon  States  less  able 
or  willing  to  bear  it.  If  the  proposition  had  been  levied 
according  to  representation,  the  quotas  of  the  richer 
States  of  Louisiana,  Georgia  and  South  Carolina  would 
have  been  less  than  under  the  ad  valorem  by  more  than 
half  a  million  dollars  each.  The  levy72  of  50  cents  on  $100, 

e'Art.  I,  Sect.  VI,  Par.   i. 

70  Report  of  July  24,   1861,  Treasury  MMS. 

71  Instructions  of  Sept.  24,  1861. 

72  $500  worth  of  property  was  exempt  in  each  family;  also  the 
property    of    educational,    religious    and    charitable    institutions. 


25 

passed  August  iQth,  was  estimated  to  produce  $21,000,- 
ooo. 

DECAYS  IN  COLLECTION. 

Assessments  were  to  be  made  as  early  as  November 
ist,  and  collections  were  due  May  I,  1862.  When  the 
measures  looking  towards  a  valuation  of  Confederate 
property  were  taken,  Congress  passed  a  provision,  four 
months  before  the  tax  act  was  voted  upon,  that  the  sev- 
eral States  might  anticipate  the  payment  of  the  tax  and 
assume73  their  quotas,  receiving  a  rebate  of  10%. 

The  chief  collectors74  of  the  war  tax,  one  for  each  State 
were  appointed  September  24th,  and  the  States  were  di- 
vided into  districts  with  subordinate  collectors  at  their 
head,  who  in  turn  appointed  district  assessors.  But  the 
selection  of  all  these  officers  was  a  work  that  required 
time.  Some  of  the  chief  appointees  could  not  be  prompt- 
ly reached.  Certain  States,  as  Texas  and  Florida,  had 
laws  forbidding  their  State  collectors  to  serve  the  na- 
tional system.  The  majority  of  the  assessors  could  not 
begin  their  duties  until  1862,  and  extensions  of  time  were 
being  constantly  granted  in  addition  to  the  supplementary 
act  of  Congress  of  December  19,  1861,  which  fixed  Feb- 
ruary ist  as  the  limit.  Alabama  through  the  unfortunate 
selection  of  a  chief  collector  had  no  assessment  made 
when  collections  were  due. 

Georgia  made  the  best  record,75  reporting  its  assess- 
There  were  seven  schedules  on  which  the  levy  was  placed:  real 
estate,  slaves,  merchandise,  bank  and  corporate  stock,  money 
at  interest  or  in  securities  other  than  Confederate  bonds,  cash 
on  hand,  cattle  and  household  goods.  Under  household  goods 
the  objects  taxed  were  gold  watches,  gold  and  silver  plate, 
pianos  and  pleasure  carriages. 

78  This  was  an  American  practice,  having  been  used  in  the  tax 
bill  of  the  War  of  1812,  and  also  in  the  Federal  direct  tax  of  1861. 

"The  chief  collectors  were:  H.  T.  Garnett.  Virginia:  E. 
Stearnes,  Georgia;  R.  M.  Lusher,  Louisiana;  W.  K.  Lane,  North 
Carolina;  J.  D.  Pope,  South  Carolina;  A.  Martin,  Alabama;  E. 
E.  Blackburn,  Florida;  John  Handy,  Mississippi;  G.  J.  Durham, 
Texas;  J  G.  M.  Ramsey,  Tennessee,  and  W.  H.  Halliburton, 
Arkansas. 

75  Letter  to  E.  Stearnes,  collector 


26 

ments  fairly  promptly.  The  State  Legislatures  were  ex- 
ceedingly slow  in  acting  on  the  assumption  of  the  tax,  and 
the  period  was  extended  from  November  to  January  and 
then  to  February,  1862.  Congress  had  to  offer  final  en- 
couragement, April  22d,  to  enable  some  of  the  States  to 
assume  their  quotas,  the  call  certificates  being  taken  by 
South  Carolina  for  that  purpose.  The  collectors  were 
notified76  to  hold  themselves  in  readiness  to  begin  work, 
for  even  after  many  of  the  Legislatures  had  voted  to  take 
up  the  quota,  there  was  much  delay  in  attending  to  the 
payment.  Accordingly  when  May,  the  appointed  time 
for  the  receipts,  had  come  there  were  few  returns  made, 
but  Mr.  Memminger  was  expecting  large  relief  for  the 
Treasury  speedily.77 

In  August  one-half  the  contemplated  returns,  $10,000,- 
ooo,  was  announced.78  All  the  States  but  Mississippi  and 
Texas  had  assumed  the  tax.  Thompson  Allan,  chief  of 
the  War  Tax  Bureau,  submitted  his  report  January  6, 
1863,  showing  the  receipts  to  be  then  $16,664,573.  ^he 
rebate  to  the  States  had  reduced  the  original  levy*$i,- 
700,000.  Tennessee  fell  short  $1,000,000  by  the  occu- 
pancy of  its  territory,  and  other  States  had  various  de- 
ficits. Congress  had  allowed  10%  in  case  of  State  respon- 
sibility for  the  tax,  presumably  to  cover  the  expense  of 
collection,  yet  in  Mississippi,  where  collected  by  the  Con- 
federate Treasury,  the  actual  cost79  had  been  2%.  The 
several  Legislatures  had  issued  their  own  notes  to  pay  the 
assessments  or  borrowed  on  their  bonds,  so  instead  of  a 
real  taxation,  this  operation  resulted  in  swelling  the  gen- 
eral indebtedness  of  the  country. 

Accordingly  with  such  manifestation  of  the  sentiment 
against  direct  taxation,  the  first  session  of  Congress,  Feb- 
ruary i8th  to  April  21  st,  did  nothing  to  increase  the  al- 

76  April  2,  1862. 

"To  G.  W.  Randolph,  Secretary  of  War,  May  5th. 

78  Report  of  Memminger,  Aug.  2ist. 

79  War  Tax  Report. 


27 

HOSTILITY  TO  LEGAL  TENDER. 

ready  small  and  inefficient  tax.  Yet  much  time  was  spent 
in  discussion  of  the  adoption  of  a  legal  tender  clause,  the 
question  starting  on  February  25th,  the  date  of  the  pas- 
sage of  the  Federal  legal  tender  act.  A  majority  of 
neither  the  House  nor  the  Senate  received  the  sugges- 
tions favorably  and  the  Secretary  gave  expression80  to 
L.  J.  Gartrell,  chairman  of  the  Judiciary  Committee,  of 
the  fixed  hostile  policy  of  the  administration  to  the  plan. 
His  argument  was  that  the  notes  needed  no  aid  to  enable 
them  to  perform  the  functions  of  a  legal  tender,  and  if 
force  were  used  suspicion  would  be  aroused  and  credit 
affected.  He  further  urged  that  such  a  law  would  not 
prevent  depreciation,  while  the  experience  of  all  nations 
attested  to  the  utter  failure  of  forcing  notes  at  a  penalty. 

CURRENCY  ACT  OF  APRIL,  1862. 

The  currency  bill81  added  the  $50,000,000  notes  asked 
for  and  a  reserve  of  $10,000,000,  to  be  kept  for  issuance 
to  holders  of  the  deposit  certificates  upon  any  sudden 
call.  Besides,  $5,000,000  in  denominations  of  ones  and 
twos  were  ordered.  All  notes  of  former  issues  were  of 
larger  denomination  and  it  was  thought  this  incon- 
venience increased  the  depreciation.  The  full  recommen- 
dation of  bonds,  $165,000,000,  was  voted,  but  without  the 
accompanying  additional  guarantee  of  interest  through 
adequate  taxation.  These  bonds  were  for  a  yet  larger 
period,  30  years,  with  right  to  be  redeemed  within  10 
years.  In  the  sum  total  voted,  there  were  the  various 
forms  of  substitutes,  brought  into  use  during  the  year 
past.  The  call  certificates  at  6%  interest  were  allotted 
$50,000,000  of  the  issue.  In  December  this  class  of  ab- 
sorbents had  been  fixed  at  $30,000,000.  The  increased  de- 
mand for  them  was  another  sign  of  the  depreciation  of 
the  notes. 

80  Letter  of  March  13,  1862. 

81  Act  of  April  12,  1862,  Statute  I,  Chapter  XXVII. 


28 

BONDS  REFUSED,  NOTES  TAKEN. 

A  large  share  of  the  bonds  was  intended  to  be  ex- 
changed for  supplies  and  subsistence.  It  was  expected  to 
give  an  opportunity  for  investment  to  people  who  had  no 
surplus  capital  in  money.  From  the  first  the  railroads  had 
taken  a  portion  of  their  pay  for  government  transporta- 
tion in  bonds.  The  same  bargain  was  to  be  struck  with 
the  farmer  for  his  produce  and  the  manufacturer  for  his 
clothing.  This  was  an  extension  of  the  spirit  of  the  pro- 
duce loan,  for  the  act  of  one  of  the  parties  to  the  trade 
was  yet  left  voluntary.  If  the  public  responded,  that 
mounting  tide  of  notes  could  be  stayed. 

The  purpose  of  the  Department  was  to  keep  the  notes 
for  the  pay  of  the  army,  for  the  wages  of  mechanics  and 
such  expenditures  not  able  to  be  met  by  bonds.  But  it 
was  difficult82  to  get  the  War  and  Navy  Departments  to 
cooperate  in  the  new  plan  of  payment.  Previously,  it  had 
been  urged  that  requisitions  be  satisfied  one-half  in  cash 
and  one-half  in  bonds.  Now  when  the  law83  was  tried,  the 
disbursing  officers  reported  that  the  owners  of  supplies 
would  not  part  with  them  except  for  notes.  Friction  be- 
tween the  Departments  arose  and  the  Secretary  was 
thought  to  be  unfavorably  discriminating  when  he  paid  in 
bonds. 

In  an  appeal  to  President  Davis  on  April  Qth,  Mr.  Mem- 
minger  wrote  that  if  the  whole  expense  of  the  Govern- 
ment was  paid  in  notes,  the  $50,000,000  provided  would  be 
exhausted  in  sixty  days  and  the  Confederacy  brought  to 
a  stand.  The  $181,000,000  of  bonds  was  an  asset  which 
no  power  or  skill  that  he  knew  could  convert  into  cash. 
Still  further  harrassed,  the  Secretary84  asserted  that  he 

82  Letter  to  Secretary  Randolph,  March  27,  1862. 

88  The  requisitions  of  the  War  and  Navy  Departments  were 
much  in  advance  of  the  means  of  the  Treasury  to  pay,  and  Mr. 
Memminger  asked  that  note  issues  be  reserved  for  the  soldiers, 
and  creditors  generally  be  tendered  the  bonds. 

"To  Col.  Northrop,  May  10,  1862,  Letter  Book  "C." 


29 

had  not  suggested  the  law  of  payment  by  bonds,  but  the 
blame  for  it  belonged  to  Congress.  It  was  known  that 
New  Orleans  refused  to  take  the  bonds,  as  also  in  the 
past  it  had  made  little  use  of  the  call  certificates  for  fund- 
ing. Wherever  the  sections  were  threatened  by  the 
enemy,  the  people  would  accept  nothing  but  notes  in  their 
dealing  with  the  Confederacy.  By  June  the  situation  was 
critical,  only  a  few  million  dollars  of  notes  remaining  un- 
issued of  the  prescribed  $200,000,000.  The  bond  measure 
of  Congress  being  a  failure,  the  next  device  of  the  Treas- 
ury was  foreshadowed  in  a  communication85  to  the  Presi- 
dent. The  Secretary  insisted  that  in  the  event  of  the  calls 
for  notes  exceeding  the  amount  for  which  legislative  au- 
thority had  been  given,  the  Executive  must  meet  the 
emergency  unless  interest-bearing  notes  could  be  sub- 
stituted for  the  many  millions  of  bonds,  which  had  few 
takers.  In  the  recent  currency  bill  it  had  been  provided 
that  one  hundred  dollar  notes,  bearing  an  interest  of  two 
cents  a  day,  commonly  known  as  seven-thirty  notes, 
might  be  issued  for  the  purpose  of  having  notes  of  smaller 
denomination  exchanged  for  them,  while  the  interest- 
bearing  notes  at  the  same  time  would  be  kept  out  of  cir- 
culation for  the  sake  of  the  investment.  By  addressing8* 
the  banks  on  this  new  form  of  note,  which  had  been  fre- 
quently87 advocated  by  Mr.  Memminger,  a  considerable 
demand  was  established,  and  within  two  months  $23,000,- 
ooo88  were  used.  The  original  bill  contained  no  provisions 
for  the  time  and  means  of  paying  the  interest  on  this  form 
of  credit,  so  that  the  following  session  of  Congress89 
designated  the  use  of  non-interest  notes  annually  for  the 
purpose. 

88  Special  report  of  June  7th. 

86  To  Savannah  and  Charleston  banks. 

81  Reports  of  May  10,  July  20,  1861. 

88  Report  of  Aug.  21,  1862. 

89  Act  of  Sept.  23,  1862. 


30 

FINAL  RELIANCE  ON  PAPER. 

The  second  session  of  the  First  Congress  placed  the 
final  seal  of  approval  on  the  program  of  printing  govern- 
ment paper  in  response  to  every  claim  of  its  creditors.    It 
first  granted90  an  additional  $50,000,000  of  the  ordinary 
circulation,  then  threw  aside  the  limit  of  $250,000,000  by 
authorizing  notes  to  be  put  forth  in  such  amounts  as  were 
needed  to  meet  appropriations.     In  the  Treasury  report 
there  seemed  satisfaction  in  the  workings  of  the  financial 
measures.     Excessive  note  issue  was  held  up  as  a  disas- 
trous evil,  but  no  immediate  danger  was  sounded.    Never- 
theless, for  six  months  notes  had  continued  the  chief  re- 
source, $115,000,000  being  used.    Bonds  available  for  the 
conversion  of  notes  and  for  the  payment  of  supplies  ag- 
gregated $25,000,000.    This  stock  having  been  placed  on 
sale  with  the  depositories,  found  little  demand.    The  call 
certificates  for  deposits  of  notes  at  6%  was  more  accept- 
able to  the  public,  and  since  the  passage  of  the  act  in 
December,  1861,  $37,585,200  had  been  taken.    The  Presi- 
dent in  his  message  of  August  iQth  favored  giving  the 
people  what  they  wanted,  notes  and  not  bonds,  saying  that 
the  accumulated  debt  was  insignificant  compared  with  the 
magnitude  of  the  war.     However  sanguine  the  expres- 
sions of  the  authorities,  the  small  amount  of  bonds  used 
for   funding,    thereby    possibly    carrying    off   the    money 
stream  that  was  being  bid  flow  so  freely,  required  some 
remedial  action.    The  seven-thirty  note  was  designed91  to 
combine  the  features  of  funding  and  currency.     The  in- 
terest was  expected  to  cause  it  to  be  hoarded.     The  De- 
partment hoped  to  attract  $70,000,000  said  to  be  in  the 
hands    of    private    capitalists.     But    the    interest-bearing 
notes  came  to  be  used  for  current  expenses  along  with 
the  non-interest  notes.    Thus  the  second  device  in  credit 
instruments  of  the  year  failed  to  attain  the  purpose  for 

90  Act.  of  Sept.  23,  1862. 

91  Report  of  Aug.  21,  1862. 


which  it  was  put  forth,  and  the  fancied  barriers  to  over- 
issue were  proven  insufficient. 

SECRETARY'S  ALARM  AND  REASON  FOR  IT. 

The  Secretary  now  evinced92  the  first  serious  alarm. 
He  acknowledged  the  unfavorable  turn  of  the  experiment 
which  he  had  planned93  six  months  earlier,  that  "after  the 
issue  of  notes  had  been  raised  to  $200,000,000,  there 
should  be  a  pause  in  this  direction,  until  we  can  see  the 
effects  on  the  country." 

At  the  same  period  he  had  written9*  to  Jas.  D.  Dene- 
gree,  of  New  Orleans,  "I  have  endeavored  to  restrain  the 
issue  of  Treasury  notes,  so  as  not  to  have  a  currency  of 
assignats."  But  familiarity  with  French  financial  history 
had  not  brought  the  Secretary  through  safely,  and  his 
warning  to  Congress  was  that  there  are  indications  of 
various  kinds  that  some  support  of  the  currency  will  soon 
be  required.  The  new  appropriations  for  the  last  quarter 
of  the  year  reached  $150,000,000.  To  meet  these  the  gov- 
ernment printing  presses  contributed  a  monthly  increase 
of  $40,000,000  of  notes.  The  estimate  on  September  3Oth 
was  that  the  total  circulation  outstanding  by  January  I, 
1863,  would  be  $433,000,000.  The  report95  afterwards 
made  the  actual  amount  $410,000,000,  the  general  cur- 
rency being  $290,000,000.  To  the  extent  of  $120,000,000 
were  the  seven-thirty  notes  used  for  current  purposes,  be- 
ing issued  in  practically  equal  sums  with  ordinary  notes 
in  the  last  half  year.  In  ten  months  there  had  been  a 
more  than  three-fold  increase  of  Treasury  paper  over  the 
amount  of  the  provisional  year  of  the  Confederacy ;  while 
in  the  first  year  there  had  not  been  an  adequate  concep- 
tion of  the  size  of  the  war;  neither  in  the  plans  for  the 
second  year  were  the  provisions  of  the  necessary  propor- 

02  To  A.  H.  Stephens,  Oct.  3d. 
98  Report  of  March  14,  1862. 
M  Letter  of  April  ist. 
95  Jan.   10,  1863. 


32 

tions.  The  estimates  were  submitted  for  an  aggregate  of 
$298,000,000  by  December  ist;  the  expenditures  on  De- 
cember 31,  1862,  had  reached  $417,000,000,  and  there 
were  $81,879,913  undrawn  appropriations,  making  a  to'tal 
of  $498,851,648. 

In  the  face  of  such  demands  government  paper  gave  the 
easiest  answer.  The  administration  cannot  be  charged 
with  ignorance  of  the  results  of  such  a  policy,  yet  it  cham- 
pioned no  comprehensive  financial  system.  The  economic 
axiom  that  it  is  far  more  difficult  to  recover  a  failing  cur- 
rency than  to  sustain  a  sound  one  brought  with  its  utter- 
ance96 no  adequate  solution  of  the  growing  perplexity. 

THREE-FOU>  OVER-ISSUE  AND  PRICES. 
As  the  issue  of  notes  was  three-fold  larger  than  the  South 
needed  for  its  business  transactions,  by  that  degree  were 
prices  being  theoretically  enhanced.  The  response  was 
not  so  immediate,  and  impaired  transportation  caused 
great  variations  in  localities.  In  December,  1862,  wheat 
in  Richmond  was  selling  at  four  dollars,  corn  at  three 
dollars,  and  oats  at  two  dollars  per  bushel,  and  flour  at 
from  $20  to  $25  per  barrel.  Gold  had  risen  from  $1.70 
in  March  to  $3.00.  The  steady  rise  of  general  prices  had 
well  entered  on  its  ruinous  course. 

PRINTING  AND  COUNTERFEITING. 

In  view  of  the  financial  methods  of  this  period  the 
preparation  of  notes  and  bonds  was  a  most  important  de- 
partment of  the  Treasury.  Contracts  with  the  Richmond 
firms  of  Hoyer  &  Ludwig,  and  Keatinge  &  Ball,  furnished 
the  material,  and  the  registry  and  signing  were  done  by 
the  government.  In  May,  1862,  when  McClellan  waged 
the  James  River  campaign,  for  safety  the  issue  division 
was  removed  to  Columbia,  South  Carolina.  The  delay 
of  two  weeks  and  more  caused  an  accumulation  of  unpaid 
requisitions,  already  largely  on  the  increase,  and  there 
was  serious  embarrassment  of  the  Treasury  for  a  con- 

"  Report  of  Oct.  3,  1862. 


33 

siderable  period.  At  the  same  time  the  method  of  signing 
the  notes  increased  the  difficulties,  although  a  large  force 
of  ladies  and  men  was  employed.  The  Secretary  asked 
Congress  in  vain  to  allow  the  signatures  to  be  engraved. 
The  creation  of  a  distinct  bureau  was  advised  in  1862, 
but  not  until  May  I,  1863,  was  the  act  passed  establishing 
the  Treasury  Note  Bureau,  and  S.  G.  Jamison  became 
chief,  directing  from  Richmond.  The  plant  at  Columbia97 
was  operated  to  the  end,  but  as  necessities  increased, 
lithographers  and  other  skilled  workmen  were  imported 
from  England. 

The  character  of  the  note  was  susceptible  J;o  counter- 
feiting, and  in  August,  1862,  an  epidemic  of  false  money 
was  thought  to  threaten  the  South.  Certain  plates  were 
stolen  from  Hoyer  &  Ludwig,  and  the  spurious  issue  was 
started  in  the  West.  There  was  a  popular98  belief  that 
firms  in  the  North99  were  engaged  in  introducing  coun- 
terfeits. Much  indignation  was  aroused,  and  President 
Davis  gave  official  expression  of  it  in  a  message.  The 
most  vigilant  measures  were  taken  by  the  Department 
and  severe  penalties  enacted.  One  counterfeiter  of  Rich- 
mond was  hanged.  During  1863  unsigned  notes  were 
stolen  from  Columbia  and  sporadic  cases  of  counterfeit- 
ing came  to  light.  Yet  it  is  scarcely  probable  that  suf- 
ficient false  notes  were  uttered  to  affect  the  depreciation 
of  the  true.  The  best  evidence  was  the  amounts  received 
at  the  depositories.  The  proportion  was  quite  small,  an 
extreme100  case  being  at  Charleston,  where  out  of  $2,- 
000,000  the  aggregate  counterfeits  was  $2,340.  Agents 

97  C.  F.  Henckle  was  made  chief  clerk  on  June  3,  1862,  and  over- 
saw the  contract  of  Evan^s  &  Cogswell. 

"  Letter  to  P.  C.  Clayton,  Asst.  Sec'y.  Sept.  i,  1862. 

"  S.  G.  Uphem,  403  Chestnut  St.,  Phila.,  advertised  $20  Con- 
federate bonds  and  15  different  fac-similes  of  bonds  and  notes  of 
1862  issue. 

100  Return  of  Nov.  5,  1862. 


34 

were  not  allowed  to  suffer  for  their  receipt  of  bad  money. 
The  currency  of  the  land  was  no  longer  sound  in  1862, 
and  in  the  first  uncertainty  of  diagnosing  the  causes  of  im- 
pairment, minor  disturbing  elements  were  likely  to  as- 
sume undue  importance. 


35 


CHAPTER  III.— REMEDIES. 

In  the  second  year  of  the  Confederacy  the  tendency  of 
the  financial  policy  was  variously  interpreted.  The  prac- 
tice of  the  Administration  was  to  make  cheerful  reports 
on  the  condition  of  the  public  credit.  The  press  was  in 
the  main  conservative  and  loyal  and  not  disposed  as  yet 
to  judge  harshly  the  Treasury  methods,  excepting  the 
utterances101  of  the  Richmond  Examiner.  There  was  a 
popular  notion  of  vast  resources  in  the  South,  and  none 
but  the  ignorant  or  timid  dared  question  whether  its  debts 
could  be  paid,  however  enlarged.  But  the  proposition 
in  Congress  of  a  high  rate  of  taxation  brought  forth  very 
divergent  opinions  on  the  economic  measures  feasible  and 
adequate.  A  bill  was  reported  September  23  by  Mr. 
Kenner,  of  Louisiana,  chairman  of  the  Ways  and  Means 

FORCED  LOAN  REJECTED. 

Committee,  which  provided  for  the  levy  of  a  uniform  in- 
come tax  of  20%.  This  was  to  be  assessed  on  January  I, 
1863,  on  the  gross  products  of  the  year  1862.  All  sources 
of  income  were  liable  except  bonds  and  Treasury  notes. 
The  minimum  exemption  of  total  products  and  income 
was  $500.  In  return  for  paying  this  tax,  the  collectors 
were  to  give  bonds  of  the  Treasury,  called  "Income  Tax 
Bonds,"  bearing  6%  interest  and  the  principal  payable 
from  10  to  30  years. 

This  plan  was  thus  a  forced  loan  under  the  name  of  a 
tax.  The  line  of  support  of  the  bill  by  Mr.  Kenner  gave 
the  type  of  the  new  resolute  policy  that  would  have  re- 
paired, earlier  mistakes.  His  argument102  was  that  things 


101  Apr.  4,  Apr.  11,  .Sept.  16,  1862,  etc. 

102  Richmond  Sentinel,  Examiner,  Sept.  23,  1862. 


36 

had  been  going  smoothly,  but  now  the  time  had  come  for 
vigorous  action.  With  one  slight  exception  the  credit  of 
the  South  had  been  based  on  its  future  resources.  The 
printing  presses  could  no  longer  carry  on  the  war,  but 
well  defined  revenues  must  be  created  to  sustain  the  gov- 
ernment. It  was  not  the  business  of  Congress  to  lighten 
the  burdens  of  the  people,  but  to  devise  measures  that 
will  meet  the  heavy  expenses  of  the  present.  Mr.  Kenner 
paid  a  high  tribute  to  the  confidence  of  the  people  in  the 
notes  when  he  said  they  would  receive  them  until  it  took 
a  barrel  of  notes  to  buy  a  barrel  of  flour,  while  meantime 
inevitable  financial  law  was  working  the  nation's  irretriev- 
able ruin.  There  was  hesitation  on  the  part .  of  many 
members  to  admit  the  serious  depreciation  of  the  currency 
and  sums  ranging  from  $300,000,000  to  $400,000,000  were 
thought  by  some  to  be  not  excessive  for  the  circulation. 

The  opposition  to  the  tax  measure  was  many-sided  and 
determined.  Those  who  were  working  for  a  legal  tender 
law  did  not  favor  the  system.  The  charge  of  unconstitu- 
tionally was  urged  by  Mr.  Boyce,  of  South  Carolina,  and 
Mr.  Bridgers,  of  North  Carolina,  on  the  ground  of  its 
being  a  forced  loan.  Other  representatives  denied  that 
the  measure  was  expedient  or  necessary.  Mr.  Bruce,  of 
Kentucky,  took  the  position  that  no  tax  could  be  relied 
upon  to  pay  the  interest  on  the  debt,  which  required  for 
its  successive  levies  the  action  of  future  Congresses.  It 
was  also  declared  that  the  proposed  revenue  could  not  be 
applied  to  aid  the  currency.  While  some  hailed  the  plan 
as  a  satisfactory  relief  from  possible  impressment  of  mili- 
tary supplies,  yet  the  more  general  sentiment  prevailed 
that  the  country  was  not  ready  for  such  a  measure.  The 
scheme  was  thought  to  have  been  arranged  hastily  and  to 
have  not  included  all  revenues.  Mr.  Chambers,  of  Mis- 
sissippi, voiced  the  attitude  of  the  House  in  his  statement 
that  since  the  money  could  not  be  collected  until  April 
there  was  no  injury  from  waiting,  and  the  House  was  not 


37 

then  prepared  to  perfect  a  plan  of  taxation.  Accordingly, 
in  the  face  of  the  protests  of  Mr.  Perkins,  of  Louisiana, 
that  they  had  passed  appropriations  increasing  the  ex- 
penses for  one  month  by  $80,000,000,  the  measure  of  re- 
lief was  postponed103  on  October  9th  to  the  next  session 
by  a  vote  of  36  to  28. 

LEGAL  TENDER  UNCONSTITUTIONAL. 

The  legal  tender  measure  fared  no  better  than  in  pre- 
vious sessions.  Mr.  Foote,  of  Tennessee,  by  his  advocacy 
of  it  established  his  career  as  the  notorious  opponent  of 
the  Administration.  A  motion  to  make  the  bill,  introduced 
by  Mr.  Gartell  August  i8th,  a  special  order,  was  defeated 
by  a  vote  of  54  to  28. 

The  Judiciary  would  not  report  favorably  then  nor  at 
the  third  session  in  January,  1863,  when  Mr.  Swan,  of 
Tennessee,  offered  a  bill  to  grant  an  issue  of  $250,000,000 
notes  receivable  for  all  debts.  The  amount  of  circulation 
had  reached  such  proportions  that  a  legal  tender  act  would 
have  either  created  two  currencies  or  had  an  ex  post  facto 
application.  The  view  of  the  unconstitutionally  of  such 
legislation  continued  to  extend  more  widely,  until  a  year 
later,  when  under  new  currency  plans  the  proposition  being 
again  made,  there  were  very  few  supporters. 

101  The  motion  of  Mr.  Jones,  of  Tennessee,  was  that  it  is  the 
duty  of  Congress  to  pass  a  bill  at  its  present  session  to  raise 
revenue  by  taxation  and  that  the  resolution  for  adjournment  on 
Monday.  Oct.  13,  be  rescinded.  The  vote  was — yeas,  Ashe.  Bald- 
win, Barksdale,  Bonham,  Boyce,  Bridgers,  Currin,  Elliott,  Farrow, 
Foote,  Goode,  Graham,  Gray,  Harris,  Hartridge,  Hilton,  Hoi- 
combe,  Holt,  Jones,  Kenner,  Lyons,  McRae,  Menees.  Miles, 
Perkins,  Russell,  Sexton  and  Swan — 28.  Nays — Atkins,  Batson, 
Bell,  Boteler,  Chambers,  Chilton,  Clapp,  Clark,  Clopton,  Collier, 
Dargan,  Dupre,  Foster,  Freeman,  Gardenhier,  Garland,  Garnett, 
Gartrell,  Hanly,  Heiskell,  Herbert,  Johnson,  Kenan  of  Ga.,  Kenan 
of  N.  C,  Lauder,  McDowell,  McQueen,  Pugh,  Rails,  Royston, 
Smith  of  Ala.,  Smith  of  N.  C.,  Trippe,  Wilcox,  Wright  of  Texas, 
and  Wright  of  Tenn.— 36. 


FATAL  INACTION  OF  CONGRESS. 

Congress  did  not  escape  condemnation  for  its  failure  to 
pass  a  proper  tax  law.  The  Richmond  Whig  of  October, 
1862,  said:  "The  country  will  not  accept  its  leaving  im- 
portant public  questions  to  settle  themselves  as  duty  done. 
All  know  that  the  currency  question  imperiously  demands 
some  sort  of  decision."  The  condition  of  the  currency 
received  increasing  public  attention  and  the  demand  for 
heavy  taxation  to  secure  the  bonds  which  would  relieve  the 
inflation  came  to  be  a  national  propaganda.  But  the  evil 
was  wrought  in  the  postponement  of  that  which  had  been 
almost  fatally  delayed,  and  scores  of  millions  of  notes  were 
to  be  added  monthly  before  measures  for  relieving  eco- 
nomic mistakes  would  be  ejiacted.  The  inaction  of  Con- 
gress in  October  was  an  added  blow  to  credit,  reflected  by 
the  increase  of  speculation  and  the  desire  to  get  rid  of  the 
notes  in  all  forms  of  investments.  Manufacturers  were 
charged  with  unwarranted  advance  of  prices  and  extortion 
was  not  confined  to  place  or  party. 

THE  PRODUCE  LOAN. 

Although  increased  receipts  from  taxes  were  denied,  the 
Treasury  worked  diligently  to  render  available  other  re- 
sources than  notes.  The  bonds  had  found  comparatively 
few  direct  purchasers,  for  they  were  allowed  to  be  sold 
only  above  par.  After  July,  1862,  they  were  not  thrown 
open  to  general  bids.  The  funding104  of  notes  and  ex- 
change for  produce  did  not  exhaust  during  this  year  the 
one  hundred  million  loan  of  August  19,  1861,  and  the 
bonds  of  the  new  loan  of  April  12,  1862,  were  not  even 
issued.  However,  foreign  markets  now  offered  an  inviting 
prospect  for  the  sale  of  special  cotton  bonds.  This  oppor- 
tunity arose  out  of  changes  in  the  Produce  Loan.  The 
large  subscription  list  of  1861  had  not  silenced  objection 

104  Report  of  Jan.  10,  1863. 


39 

to  this  project.  The  collections,  being  at  the  discretion  of 
the  planters,  continued  to  be  delayed,  since  the  blockading 
of  the  ports  hindered  the  marketing  of  the  produce.  The 
sentiment  in  favor  of  government  control  of  cotton  opposed 
the  double  plan  of  exchange  which  put  products  into  notes 
and  these  proceeds  in  bonds.  The  Richmond  Examiner105 
said  the  Produce  Loan  was  a  sham  and  a  delusion,  but  if 
all  the  cotton  was  delivered  to  the  government  and  formed 
the  basis  of  a  bona  fide  loan  of  money  value,  it  would  be 
more  desirable  than  gold  or  silver,  and  more  valuable  after 
the  blockade. 

The  First  Congress  favored  a  new  adjustment  and 
passed  a  law  on  April  21,  1862,  allowing  the  products  to  be 
sold  direct  to  the  Treasury  for  8%  bonds,  $35,000,000  be- 
ing appropriated  for  the  purpose.  The  produce  loan  con- 
tinned  to  receive  cotton  and  tobacco  by  subscription,  but 
this  act  gave  much  wider  power  to  the  Secretary  for  the 
control  of  the  staples.  It  looked  to  a  possibly  larger  use 
of  bonds  than  had  been  gained  up  to  this  time  by  the  pro- 
duce subscriptions.  This  legislation  was  not  radical 
enough  for  those  who  advocated  government  purchase, 
nor  could  the  amount  to  be  secured  warrant  the  statement 
that  the  cotton  of  the  country  created  an  actual  guarantee 
of  all  the  Treasury  notes  issued.  Yet  the  arguments  for 
entire  ownership  continued  to  be  advanced  intermittingly 
in  the  newspapers. 

THE  SCHEME  NOT  SUCCESSFUL. 

In  his  report  of  October  2,  1862,  Mr.  Memminger  ad- 
mitted the  failure  of  the  Produce  Loan  as  a  means  of  con- 
verting currency  into  bonds.  Nor  as  a  collecting  agency 
was  it  bringing  satisfactory  results,  though  an  order  had 
been  issued  under  the  new  act  that  the  subscribers  at  once 
discharge  their  obligations  and  allow  exchange  for  bonds. 

m  Apr.  11,  1862, 


40 

The  report  of  the  chief  clerk  on  January  9,  1863,  gave 
the  first  accurate  gauge  of  the  usefulness  of  the  Bureau 
The  returns  for  1861-2  were  431,347  bales  of  cotton,  worth 
$21,567,350,  at  $50  to  the  bale;  other  products  worth 
$895,180,  cash  $608,375,  a  total  of  $23,070,905.  Of  this 
amount  only  $2,000,000  had  been  added  in  1862,  as  the 
result  of  the  solicitations  directed.  The  agency  had  not 
been  effective  in  drawing  the  support  of  the  people  during 
the  second  year  of  the  war,  and  had  made  only  fair  pro- 
gress in  realizing  on  the  early  pledges,  whose  payment 
was  no  longer  optional.  The  collections  amounted  to 
$7,633,044,  less  than  one-third  of  the  total,  at  an  expense 
of  one-third  of  one  per  cent. 

The  next  report  of  Mr.  Roane,  the  chief  clerk,  on  No- 
vember 30,  1863,  placed  the  value  of  the  old  subscriptions 
at  $28,070,905,  an  increase  of  $5,000,000  being  allowed  for 
the  appreciation  of  cotton.  Of  this  amount  now  $14,940,- 
950  was  collected  and  new  subscriptions  had  been  secured 
to  the  sum  of  $i6,956,ooo.106  The  final  report  of  the  Pro- 
duce Loan  on  November  10,  1864,  showed  that  $11,173,095 
of  the  original  list  could  not  be  collected  on  account  of 
lost  property  and  withdrawal  of  the  8%  bonds.  This  was  a 
shrinkage  of  40%  of  contributions  pledged  under  the  more 
favorable  conditions.  The  additional  returns  of  1863-4 
were  $17,579,400,  raising  the  total  receipts  to  $34,476,400, 
secured  during  the  war  by  this  agency  of  the  Treasury. 
The  Bureau,  however,  from  May,  1863,  had  two  other  di- 
visions, which  were  managed  separately,  the  branch  for 
the  purchase  of  cotton,  and  the  branch  to  collect  the  tax 
in  kind. 

Mr.  Memminger  did  not  at  once  employ  the  authority 
Congress  gave  him  to  buy  cotton  with  bonds.  He  was 
only  driven  to  such  purchases  when  the  possession  of  cot- 

106 Of  this  South  Carolina  gave  $11,171,250;  Alabama  $3,457,5oo; 
Florida,  $1,217,200;  Georgia,  $i, 110,100. 


41 

ton  furnished  the  sole  means  to  secure  the  specie  de- 
manded for  European  supplies.  The  supply  of  coin  in  the 
flood  of  paper  issues  rapidly  disappeared,  for  the  amount 
in  the  Southern  banks  on  January  i,  1861,  was  estimated 
at  $27,000,000. 107  Preparations  had  been  made  at  the  New 
Orleans  Mint  for  the  coinage  of  silver,  but  after  four  half 
dollars  were  struck  in  April,  1861,  the  work  was  not  re- 
sumed. During  the  first  year  the  depositories  of  the  cities 
bought  sterling  exchange  for  the  Treasury,  driving  the 
price  to  a  steadily  rising  rate.  Fraser,  Trenholm  &  Co., 
of  Liverpool,  were  the  foreign  bankers,  and  to  them  in  the 
first  three  years  some  sum108  less  than  $10,000,000  must 
have  been  remitted.  By  June,  1862,  the  premium  on  ex- 
change had  passed  100%,  and  coin  was  difficult  to  secure. 
At  this  time  the  military  authorities  seized  $2,500,000  of 
the  coin  of  the  New  Orleans  banks  to  prevent  its  capture 
by  the  Federals.  Blockade  runners  were  beginning  to  take 

SENDING  COTTON  ABROAD. 

out  cargoes  of  cotton  to  Nassau  and  to  England,  and  the 
Treasury  saw  here  an  opening  for  converting  the  staple 
into  the  greatly  demanded  specie.  John  Fraser  &  Co.,  of 
Charleston,  the  correspondent  of  the  Liverpool  house,  was 
one  of  the  most  trusted  agents  and  assisted  in  the  devel- 
opment of  this  government  shipping.  A  considerable 
trade  both  for  public  and  private  purposes  was  carried  on 
until  the  ports  were  captured  by  the  North. 

In  order  to  have  stocks  of  cotton  to  ship  the  general 
agents  of  the  Produce  Loan  were  instructed109  to  buy  with 
vigor;  Phinzy  &  Clayton,  at  Augusta;  J.  S.  K.  Bennett, 
at  Charleston,  and  L.  W.  Lawler,  at  Mobile.  But  not  until 
the  crop  was  being  marketed  did  the  activity  begin.  Then 
J.  E.  B.  DeBow  had  been  sent  to  Mississippi,  and  this  was 

107  Eighth  Census. 

108  Reports  of  sub-treasurers. 
1MMay  28,  1862. 


42 

the  region  from  which  the  largest  supplies  were  drawn ; 
2,492  bales  were  first  bought  on  September  9,  1862,  and 
by  December  70,000"°  bales  had  been  secured  for  $4,474,- 
400,  at  13-!  cents  per  pound.  The  payment  was  almost 
entirely  in  bonds,  the  cash  outlay  being  only  $46,026. 
Texas  was  expected  to  be  a  good  field  for  operations,  but 
at  first  the  planters  refused  to  sell  for  bonds,  and  the 
transportation  planned  to  Matamoras  was  thought  too  far. 
A.  W.  McKee  was  afterwards  placed  in  charge  there,  and 
the  larger  share  of  the  purchases  was  turned  over  to  the 
army  of  the  Trans-Mississippi.  The  general  report  of 
November  30,  1863,  showed  that  399,753  bales  had  been 
bought  for  $30,314,766,  bonds  having  been  taken  for  five- 
sixths  of  the  amount.  The  average  price  per  pound  was  17 
cents,  ranging  from  12  in  Mississippi  to  36  in  South  Caro- 
lina. Alabama,  Mississippi  and  Louisiana  furnished  90 
per  cent,  of  the  stock. 

VALUE  OF  COTTON  PURCHASE. 

The  report  of  November  10,  1864,  gave  an  approximate 
estimate  of  the  value  of  government  cotton  purchase. 
The  number  of  bales  had  reached  430,724,  at  a  cost  of 
$34,525,220.  Of  this  amount  129,771  bales  were  lost  by 
capture,  burned  by  the  Confederacy  and  used  for  war  pur- 
poses; 67,653  were  west  of  the  Mississippi  and  subject  to 
military  uses ;  6,961  were  sold  by  the  Treasury  and  19,683 
sent  to  England  to  pay  the  foreign  debt,  leaving  a  balance 
yet  available  of  191,049  bales.  When  De  Bow  was  engaged 
in  Mississippi,  he  estimated  that  he  secured  one-third  of 
the  stock  in  that  State.  The  yearly  crop  had  been  greatly 
diminished  during  the  war  both  from  the  necessities  of  the 
times  and  because  of  agitation  against  growing  it.  The 
Senate  had  recommended111  that  no  planter  produce  more 
than  3  bales  to  the  man.  At  that  time  the  limitation  of 

110  Produce  Loan  report  of  Jan.  9,  1863. 
i.  13, 


43 

cotton  growing  was  yet  expected  to  exert  a  political  in- 
fluence in  drawing  the  support  of  Europe.  The  crop  of 
1862  was  commonly  put  at  2,000,000  bales,  and  as  the 
tithes  reported  from  the  yield  of  1863  were  only  15,000 
bales,  the  depression  of  agriculture  is  well  indicated.  It 
was  thought112  that  2,000,000  bales  remained  in  private 
stocks  in  the  South,  November,  1864.  The  fact  that  130,- 
ooo113  bales  went  to  New  Orleans  that  year  shows  that 
prohibitions  of  exportation  were  not  effectual.  The  Con- 
federacy was  able  to  control  a  fair  proportion  of  the 
staple  within  its  borders,  but  only  a  small  part  of  this  was 
utilized  in  furnishing  the  most  important  war  supplies. 
After  the  war,  the  United  States  disposed  of  this  Confed- 
erate cotton  to  the  value  of  $29,500,000. 

THE  ERLANGER  LOAN. 

However,  the  possession  of  cotton  by  direct  purchase 
and  the  subscriptions  to  the  Produce  Loan  gave  effective 
form  to  the  effort  to  place  a  foreign  loan.  The  plan114  was 
to  issue  cotton  certificates  on  the  purchases  and  hypothe- 
cate them  to  contractors.  They  called  for  delivery  at  cer- 
tain ports  after  peace,  20  bales  constituting  a  certificate 
worth  $1,000;  $1,500,000  of  these  were  sent  in  November, 
1862,  to  James  Spence,  the  English  agent.  Through  Com- 
missioner J.  M.  Mason  the  firm  of  Erlanger  &  Co.,  of 
Frankfort  and  Paris,  was  interested  in  the  investment. 
Negotiations  were  carried  on  in  strict  secrecy,  and  a  con- 
tract between  the  Secretary  of  the  Treasury  and  Jules 
Beeri  for  Emile  Erlanger  &  Co.  was  signed  Janu- 
ary 8,  1863.  The  Secretary  engaged  to  get  full  power 
from  Congress  for  raising  in  Europe  75,000,000  francs, 
equal  to  £3,000,000.  President  Davis  was  told115  the  funds 
were  immediately  required  and  prompt  action  must  be 


12  Report  of  Treasury,  Nov.  7,  1864. 
118  Report  of  Produce  Loan,  Nov.  10,  li 
114 To  J.  M.  Mason,  Oct.  24,  1862. 
115 Letter  of  Jan.  9,  1863. 


44 

taken.  On  January  29,  1863,  Congress  allowed  the  loan, 
and  C.  J.  McRae  was  sent  as  loan  agent  to  Paris  to  sign 
the  bonds,  together  with  Commissioner  Slidell. 

The  bankers  made  their  arrangements  so  that  the  bonds 
were  put  on  the  market  March  igth.  The  loan  was  in 
denominations  of  £100  to  £1,000,  with  interest  at  7%, 
payable  half  yearly,  and  one-fortieth  of  the  face  value  of 
the  loan  was  redeemable  at  half  yearly  drawings,  com- 
mencing March  i,  1864.  The  £100  bond  was  made  con- 
vertible into  4,000  Ibs.  of  cotton  at  6d.  a  pound  at  any  time 
not  later  than  six  months  after  peace.  Notice  of  60  days 
to  the  Confederate  foreign  representative  was  required  for 
such  exchange.  If  after  peace,  the  delivery  was  to  be  at 
the  chief  ports,  but  during  the  war  at  points  within  ten  miles 
of  transportation.  The  conditions  of  the  contract  required 
the  price  of  the  bonds  to  be  77%.  The  bankers  received 
5%  commission  on  their  sales  and  were  allowed  all  excess 
of  77%.  Payments  of  the  loan  were  to  be  made  within  six 
months  by  fixed  installments. 

The  bonds  were  floated  in  Paris,  Frankfort,  Amsterdam, 
and  London,  and  the  full  amount  was  subscribed  at  90%. 
Cotton  was  then  quoted  at  21  pence,  promising  heavy 
profits,  and  over '300,000  bales  were  announced  as  the  guar- 
antee. Although  the  loan  was  taken  with  a  rush,  the  dif- 
ficulties of  getting  the  cotton  out  seemed  to  come  as  a 
later  consideration.  In  April  the  price116  began  to  drop, 
and  though  fifteen  per  cent,  of  the  amount  had  been  paid, 
it  was  feared  that  the  whole  transaction  would  be  forfeited. 
Erlanger  &  Co.  were  accordingly  authorized  by  Mr.  Mason 
to  buy  back  heavily  of  the  bonds,  but  this  bulling  of  the 
market  kept  the  rate  up  only  for  a  time.  A  portion  of  the 
repurchased  stock  v/as  placed  again,  but  £704,000  remained 
untaken,  and  for  two  years  there  were  frequent  Treasury 
orders117  to  dispose  of  this.  Their  rate  greatly  fluctuated 

118  Report  of  Dec.  15,  1863,  to  the  Senate. 

117To  Gen.  McRae,  Sept.  15,  Dec.  10,  1863,  Aug.  2,  1864. 


45 

in  this  time,  declining  sharply  after  the  loss  of  Vicksburg. 
and  sinking  to  37%  in  December,   1863.     The  following 
year  the  increased  shipments  of  cotton  through  the  block- 
ade caused  a  marked  rise  in  quotations,  closing  again  in 
a  fall  to  57%. 

The  report  of  October  I,  1864,  gave  the  following  state- 
ment of  the  dealings : 

Total  amount  of  the  loan,  £3,000,000;  bonds  bought 
back,  £704,000;  bonds  of  repurchase  resold,  £195,000; 
whole  amount  actually  sold,  £2,491,000,  par  value;  gross 
proceeds,  £1,772,855;  commission  and  expenses,  £173,792; 
net  proceeds,  £1,599,063  or  $7,675,500. 

The  bankers,  in  addition  to  their  five  per  cent.,  had  the 
excess  of  77%  on  the  sales.  This  profitable  venture  in- 
duced Erlanger  &  Co.  to  offer  a  new  loan  of  £5,000,000, 
September  23,  1863,  on  the  same  conditions118  as  the  first, 
except  that  the  profits  above  77%  would  be  divided 
equally.  Mr.  Memminger  did  not  press  this  contract  on 
Congress,  though  it  was  renewed  in  December,  1864.  A 
balance  of  the  first  loan  yet  remained  untaken,  and  on  that 
venture  the  government  had  realized  a  bare  fifty  per  cent., 
which  in  turn  did  not  yield  the  best  returns119  upon  its 
investment  abroad,  yet  the  loan  as  establishing  the  for- 

SUCCESS  OF  THE  LOAN. 

eign  credit  of  the  Confederacy  may  be  considered  a  suc- 
cess, in  comparison  with  the  other  financial  experiences 
of  the  South.  This  was  due  to  two  reasons ;  first,  the  con- 
fidence of  the  holders  of  the  bonds  that  they  would  get 
cotton  in  any  event ;  second,  the  payments  of  interest  semi- 
annually  and  the  drawings  of  one-fortieth  of  the  principal 
were  faithfully  redeemed.  The  first  drawing  was  paid  out 
of  the  proceeds  of  the  loan,  March  I,  1864,  the  second 

"'Agreement  of  Memminger  and  Viscomte  H.  de  St.  Ronan, 
Letter  Book  "E." 

119  Bulloch.  Secret  Service  of  C.  S.  in  Europe,     i,  VoL  II,  p.  245. 


46 

from  the  Navy  fund,  and  the  third  was  made  under  act  of 
February  2,  1865,  the  total  being  £212,800. 

The  London  Index  of  September  15,  1864,  in  comment- 
ing on  the  fact  that  the  Confederate  cotton  loan  was 
quoted  at  73%,  while  that  of  the  United  States  was  41%, 
said  that  this  superior  credit  abroad  was  derived  from  the 
inestimable  strength  of  the  broad  substratum  of  hypothe- 
cated cotton.  While  the  general  bonds  of  the  Confederate 
funded  debt  represented  a  home  currency  more  or  less 
deranged,  the  foreign  credit  was  on  a  different  basis. 
However  this  condition  was  true  when  a  relatively  small 
amount  was  involved,  and  it  is  highly  problematic  to  say 
what  would  have  been  the  outcome  of  a  broader  financial 
application,  unless  it  had  been  made  in  the  first  year,  al- 
though then  the  economic  magnitude  of  the  struggle  was 
no  better  estimated  than  the  military. 

STATE  GUARANTEE:  OF  LOANS. 

Another  possible  means  of  strengthening  the  national 
credit  arose  out  of  the  constitutional  relations  of  the  States 
to  the  Confederacy.  State  bonds  on  the  market  with  the 
Treasury  loans  rated  at  a  higher  premium,  and  it  was  con- 
ceived that  if  the  several  legislatures  would  guarantee  the 
Confederate  bonds,  a  readier  sale  would  be  commanded. 
Virginia  asked  Congress  on  May  19,  1862,  to  devise  a  plan, 
but  the  initiative  belonged  properly  to  the  States.  General 
resolutions  were  passed  by  several  legislatures,  but  when 
it  came  to  deciding  on  a  definite  sum  the  scheme  failed. 
South  Carolina,  on  December  i8th,  agreed  to  underwrite 
its  quota  of  a  total  $200,000,000.  But  Mr.  Memminger120 
saw  such  vast  results  from  this  plan  through  the  reduction 
of  the  interest  to  6  per  cent,  by  reason  of  the  added  se- 
curity and  "by  the  saving  in  interest  being  so  great  annu- 
ally as  to  create  'a  sinking  fund  to  pay  off  the  entire  debt," 
that  he  urged  the  amount  be  made  $500,000,000.  South 

120  Report  of  Jan.  10,  1863. 


47 

Carolina  agreed  to  this  sum  if  the  other  States  assumed 
their  share.  J.  P.  Boyce,  of  Greenville,  was  engaged  by 
the  Treasury,  March  10,  1863,  to  represent  the  movement 
before  other  legislatures,  but  his  address  in  Georgia  was 
negatived  by  the  message121  of  Gov.  Brown  against  any 
guarantee  at  all,  declaring  that  such  action  would  make 
the  central  government  too  strong.  The  Secretary  severe- 
ly blamed122  Georgia  for  the  failure  of  the  scheme,  and 
declared  that  the  guarantee  would  have  created  a  sure 
market  in  Europe;  but  any  advantage  gained  from  the 
States'  credits  would  have  been  temporary,  for  their  finan- 
cial affairs  became  equally  involved  with  those  of  the  na- 
tional government. 

FINANCIAL  STATE  IN  JANUARY,  1863. 

The  message  of  President  Davis  on  January  12,  1863, 
to  the  third  session  of  the  First  Congress  contained  brief 
notice  of  the  recommendations  of  the  Treasury  report, 
expressing  a  belief  that  all  the  measures  would  be  readily 
adopted,  so  that  the  redundancy  would  be  easily  and 
promptly  relieved.  The  estimates  for  the  half  year  were 
submitted123  in  fairly  relative  proportion  to  the  size  of 
*  the  expenditures.  An  aggregate  of  over  $300,000,000  em- 
phasized the  extent  of  revenues  that  must  be  definitely  pro- 
vided. One  item  of  the  budget  was  the  provision  for  the 
public  debt  at  $30,000,000;  the  estimate  of  the  previous 
year  had  been  $1,500,000,  but  interest  and  redemption  of 
certificates  and  notes  had  cost  $41,000,000  in  1862.  The 
public  debt  was  now,  in  bonds  and  stocks,  $145,475,370, 
and  in  Treasury  notes  $410,629,692,  a  total  of  $556,105,062. 
Ten  months  earlier  it  had  been  a  matter  of  congratulation 
that  there  was  no  floating  debt,  but  the  other  obligations 
now  had  proportions  not  so  satisfactory.  One  of  the 

121  April  2,  1863. 

1!2To  H.  Tutwiler  of  Havana,  Ala.,  Sept.  29,  1863. 

"'Report  of  Jan.  10,  1863. 


48 

earliest  acts124  of  the  session  was  to  pass  an  appropriation 
of  $20,000,000  to  pay  interest  on  the  debt.  The  problem 
submitted  by  the  Secretary  was  to  reduce  the  volume  of 
Treasury  notes  from  $450,000,000  to  $150,000,000.  A  cur- 
rency measure  again  took  precedence  of  taxation,  and  the 
immediate  present  was  provided  for  in  the  usual  manner. 
The  act  of  March  23,  1863,  limited  the  issue  of  notes  to 
$50,000,000  a  month.  It  also  contained  a  complexity  of 
refunding  provisions  which  established  the  new  policy  for 
the  withdrawal  and  discrediting  of  the  excessive  issues. 

THE  DEMAND  FOR  TAXATION. 

On  the  subject  of  taxation,  Mr.  Memminger  in  his  re- 
port of  January  10,  1863,  had  spoken  with  a  resoluteness 
and  insistence  not  found  in  his  previous  recommendations. 
He  said:  "Ample  means  in  the  form  of  a  permanent  tax 
must  be  provided  to  secure  and  pay  the  principal  and  in- 
terest of  the  securities  in  which  the  holders  are  required  to 
invest.  Such  a  tax  is  the  corner-stone  of  the  whole  fabric. 
Without  it  the  scheme  has  no  foundation  and  can  secure 
neither  public  confidence  nor  success."  The  President  had 
said  the  people  will  freely  meet  adequate  taxation.  The 
popular  tide  was  now  running  strongly  towards  such  ak 
measure.  The  press  demanded  that  the  nation  be  bled 
heavily.  The  Richmond  Enquirer125  called  for  a  tax  of 
$200,000,000.  The  delay  of  action  by  Congress  was  bit- 
terly arraigned.  The  burden  of  the  charge  was  that  the 
South  had  "representation  without  taxation."  The  House 
was  said  to  have  shamefully  neglected  its  duty  to  originate 
a  bill.  The  Revolutionary  note  issues  had  depreciated  be- 
cause there  was  no  central  power  to  lay  revenues,  but  in 
the'  Confederacy  the  right  of  ample  taxation  was  held  as  a 
power  of  last  resort. 


124  Feb.  2,  1863. 

125  Feb.  17,  1863. 


49 

The  plan126  of  the  Secretary  was  to  follow  the  system 
used  in  the  War  Tax  and  make  the  levy  upon  property  and 
income.  He  thought  that  the  vexatious  and  expensive 
machinery  incidental  to  a  system  of  stamp  duties,  excises 
and  licenses  precluded  the  use  of  such  sources.  A  tax  on 
property  alone  was  too  great  a  burden,  and  while  the  in- 
comes might  partly  evade  assessment,  yet  profits  had  been 
so  large,  it  was  deemed  imperative  that  by  some  device 
they  be  made  to  contribute.  The  size  of  the  revenues  was 
gauged  by  the  interest  demands  of  the  Treasury  notes  and 
the  funded  debt,  a  total  charge  then  of  $48,000,000.  A 
property  tax  of  one  per  cent,  was  estimated  to  yield  $36,- 
000,000,  with  deductions  -for  occupied  territory,  based  on 
the  War  Tax  returns  for  1862.  The  possible  yield  of  in- 
come tax  was  arrived  at  by  rating  the  property  of  the 
South  at  $4,000,000,000,  and  allowing  J%  interest  on  that 
sum,  then  fixing  the  levy  at  10%,  returning  $28,000,000. 
Thus  would  be  furnished  a  tax  of  $60,000,000,  less  contin- 
gencies, and  the  excess  was  to  be  applied  to  making  re- 
demptions of  the  principal  of  the  debt  yearly.  Such  re- 
demption was  a  condition  of  the  one  hundred  million  loan, 
but  had  been  omitted  for  subsequent  bonds. 

On  January  13,  1863,  a  bill  to  levy  a  War  Tax  was  sub- 
mitted, but  other  matters  than  currency  engrossed  first 
attention,  the  House  engaging  in  debates  on  exemption, 
and  the  Senate  on  a  judiciary,  neither  of  which  measures 
was  adopted.  The  Ways  and  Means  Committee  reported 
a  bill  on- February  25th,  which  provided  for  a  tax  of  one 
per  cent,  on  all  property,  an  income  tax  and  a  system  of 
licenses.  The  bill  was  debated  a  month  and  then  passed 
with  minor  changes.  The  Senate  took  a  strong  stand 
against  the  property  tax,  declaring  that  it  was  unconstitu- 
tional, for  direct  taxes  must  be  laid  according  to  represen- 
tation, and  the  limit  of  taking  the  census  had  been  placed 

126  Capers's  Memminger,  pp.  447-451;  Records  of  War  of  the  Re- 
bellion, Series  IV,  Vol.  II,  pp.  317-322. 


50 

at  February,  1865.  The  Senate  changed  the  system  of 
income  taxation,  which  had  been  little  graded  in  the  House 
bill.  Instead  of  14%  on  incomes  up  to  $10,000,  and  24% 
on  excess  of  $10,000,  the  proposal  was  5%  on  incomes 
from  $500  to  $1,500,  10%  on  incomes  from  $1,500  to  $10,- 
ooo,  12%%  on  $10,000  to  $15,000,  and  15%  on  excess.  The 
Senate  also  inserted  the  provision  for  the  tax  in  kind  or 
the  tithe  of  one-tenth  of  the  products  of  the  farm.  This 
plan  was  advocated  in  order  to  avoid  the  policy  of  impress- 
ment,127 regulations  for  which  had  been  adopted  by  Con- 
gress. 

In  a  special  communication128  Mr.  Memminger  argued 
strongly  for  the  tithe.  With  so  many  changes  the  confer- 
ence committees  of  the  Houses  had  a  labor  of  adjustment, 
and  their  agreement  was  pushed  through  in  the  last  ten 
days  of  the  session. 

TAX  ACT  OF  APRIL,  1863. 

The  Act129  of  April  24,  1863,  was  planned  to  be  exhaus- 
tive, property  in  realty  and  personalty  and  negroes  being 
excepted.  There  were  four  chief  sources  of  revenue;  an 
ad  valorem  tax  on  surplus  products,  the  specific  taxes  and 
licenses  on  occupations,  trades  and  business,  the  graded 
income  tax  and  the  tax  in  kind.  The  tax  on  surplus  pro- 
ducts was  made  retroactive  in  order  to  levy  on  the  output 
of  1862,  and  was  in  operation  for  one  year,  its  place  after- 
wards being  taken  by  the  tithe.  It  required  a  payment  of 
8%  on  naval  stores,  liquors,  cotton,  sugar,  rice,  and  flour 
held  July,  1863.  The  gains  of  speculation,  which  was  so 
popularly  denounced,  and  so  universally  practiced,  were 
aimed  at  in  a  fashion  similar  to  the  surplus  products  by  the 
section  of  the  Act,  that  placed  a  10%  tax  on  profits  by  pur- 
chase or  sale  in  1862  of  flour,  corn,  bacon,  oats,  hay,  rice, 


727  Mch.  26,  1863. 
118  April  2,  1863. 


120 Confederate  Acts,  Statute  III,  Ch.  38,  Sec.  i-iS,  Records  of 
War  of  the  Rebellion,  Series  IV,  Vol.  II,  pp.  513-24. 


salt,  iron,  sugar,  leather,  woolens,  shoes,  etc.    This  did  not 
apply  to  the  retail  trade. 

Though  personal  property  was  exempt,  a  tax  of  one 
per  cent,  was  placed  on  moneys.  In  many  of  the  occupa- 
tions 13°  there  was  a  double  levy  of  a  license  and  a  percent- 
age on  gross  sales  for  1863.  Each  business  was  required 
to  register  within  60  days  after  the  Act,  and  thereafter  on 
January  1st,  at  which  time  the  license  was  payable.  The 
taxes  on  occupation  and  business  were  to  be  in  force  two 
years.  The  income  tax  was  a  modification  of  the  plan  of 
the  two  Houses  and  a  further  grading.  Incomes  under 
$500  were  exempt;  those  from  $500  to  $1,500  were  as- 
sessed 5%;  those  from  $1,500  to  $3,000  paid  $%  on  the 
first  $1,500,  and  10%  on  the  excess;  $3,000  to  $5,000  paid 
10% ;  $5,000  to  $10,000  paid  I2j%,  and  those  above  $10,- 
ooo  paid  15%.  These  assessments  were  to  be  collected 
July  i,  1864.  Salaries  were  required  to  contribute  in  the 
following  proportion:  After  an  exemption  of  $1,000,  there 
was  a  tax  of  one  per  cent,  on  the  first  $1,500,  and  two  per 
cent,  on  the  excess.  These  levies  were  payable  January 
i,  1864.  The  tax  in  kind  was  one-tenth  of  the  produce,131 
and  must  be  delivered  within  two  months  after  the  esti- 
mates at  a  depot  not  more  than  eight  miles  from  the  place 
of  growth.  The  obligation  could  be  commuted  for  cash. 

180 On  the  following  simply  a  license  was  placed:  bankers,  $500; 
brokers,  pawn  and  otherwise,  $200;  doctors,  dentists,  jugglers,  law- 
yers and  liverymen,  $50  each.  The  combined  license  and  tax  on  sales 
applied  to  the  following:  auctioneers,  apothecaries,  confectioners, 
photographers  and  tobacconists  paid  $50  each  and  2.%%  on  gross 
sales,  butchers  and  bakers  with  i%  on  sales.  Retail  dealers  gen- 
erally were  taxed  $50  and  2%%  on  sales,  while  wholesale  dealers 
paid  $200  and  2%%;  wholesale  liquor  dealers,  $200  and  5%;  retail 
liquor  dealers,  $100  and  10%;  distillers,  $200  and  20%;  brewers, 
$100  and  2%%;  hotels  and  inns  were  assessed  on  the  yearly  rental, 
those  bringing  $10,000  paid  $500;  $5,000  at  $300;  $2,500  rentals  at 
$200;  $1,000  rentals  at  $100;  less  than  $1,000  at  $30.  Theatres  were 
rated  at  $500  and  5%  of  the  receipts. 

181  The  tithe  applied  to  oats,  rice,  sugar,  cotton,  tobacco, 
molasses  and  slaughtered  animals,  in  addition  to  the  following 
products  where  an  initial  exemption  was  allowed  to  the  planter 
of  50  bu.  of  sweet  potatoes,  50  bu.  of  Irish  potatoes,  100  bu.  of 
corn,  50  bu.  of  wheat  and  20  bu.  of  peas  or  beans. 


52 

APPROVAL  AND  OBJECTIONS. 

The  law  received  popular  approval  because  it  was  ex- 
pected to  yield  heavy  returns  and  bring  relief  from  depre- 
ciated currency.  Later  it  was  found  to  be  a  complex  sys- 
tem of  many  valuations  and  of  many  times  of  payments. 
The  taxation  was  thought  to  be  equitable  in  that  it  did 
not  place  a  tax  on  land,  then  largely  unremunerative,  but 
the  burden  was  to  come  upon  the  actual  products  in  hand. 
Yet  with  all  this  the  farmer  was  not  satisfied,  and  be- 
lieved132 that  the  tax  should  have  been  on  the  profits  of  his 
crop,  and  not  on  the  gross  value.  He  would  have  the 
graded  principle  applied  to  the  amount  of  his  products  as 
well  as  to  incomes.  His  proportion  looked  large  in  com- 
parison with  the  two  per  cent,  on  salaries  above  $1,500. 
The  licenses  and  taxes  on  sales  were  commended  in  that 
the  incidence  came  on  the  consumer. 

The  assumption  of  the  license  power  by  the  national 
government  was  a  distinct  encroachment133  on  the  reserved 
rights  of  the  States.  In  this  matter,  as  in  others,  the  sov- 
ereignty of  the  central  government  was  fixed  by  the  stress 
of  practical  conditions.  In  the  tax  on  the  occupations  the 
range  of  discrimination  was  slight,  and  the  assessment  on 
gross  sales  was  by  no  means  in  accordance  with  the  ability 
and  real  profits  of  the  business.  A  very  large  share  of  the 
tax:  returns  was  expected  from  a  year  that  was  past.  The 
surplus  products  and  profits  of  trade  were  very  difficult  to 
measure,  and  the  probabilities  of  evasion  were  very  great. 
The  entire  system  as  one  of  direct  taxation  was  not  pos- 
sible to  be  equalized. 

The  revenues  from  the  Act  were  expected  to  be  ample. 
The  Senate  Finance  Committee  announced  that  it  would 
raise  one-third  of  the  expense  of  the  war  and  have  no 
parallel  in  history.  There  was  a  vagueness  in  the  esti- 
mates, although  the  tax  on  surplus  products  and  profits 

132  Richmond  Sentinel,  Apr.  27,  1863. 
"'Richmond  Enquirer,  Mch.  8,  1863. 


53 

was  listed  to  yield  $35,000,000.  After  the  law  began  to 
operate  so  as  to  allow  a  reasonable  conjecture,  the  Com- 
missioner expected  a  total  sum  of  $100,000,000. 

MACHINERY  OF  ADMINISTRATION. 

A  comprehensive  Assessment  Act134  accompanied  the 
Taxation  Bill.  A  Commissioner  of  Taxes  was  created, 
and  Thompson  Allan  was  promoted,  July  2,  1863,  to  this 
position  from  that  of  chief  of  the  War  Tax  Bureau.  The 
machinery  of  the  War  Tax  of  1861  was  utilized  to  some 
extent,  six135  of  the  State  Collectors  being  reappointed  for 
the  larger  work.  But  collections  and  not  assessments 
alone  now  engaged  the  national  concern,  and  collection 
districts  were  constructed  in  ten  of  the  States,  not  pre- 
viously admitting  the  Treasury  agents.  It  was  provided, 
that  appraisements  of  property  submitted  would  be  open 
to  appeal  for  fifteen  days.  Then  notices  of  the  times  and 
the  places  of  collection  were  given  and  the  assessed  taxes 
were  a  statutory  lien  for  two  years.  Fines  and  penalties 
were  to  be  recovered  in  the  name  of  the  Confederate  States 
of  America. 

The  Department  promptly  appointed  its  new  forces  and 
sent  out  portions  of  the  printed  forms,  so  that  general 
instructions  could  be  issued  by  July  23d.  But  the  new 
undertaking  was  vastly  different  from  the  earlier  taxing, 
when  there  was  a  simple  form  for  a  uniform  tax  on  twelve 
objects.  Now  there  were  hundreds  of  subjects  embraced 
under  different  classes.  The  object136  of  the  schedule  was 
to  reach  things  of  which  no  tangible  evidence  of  liability 
existed;  only  the  taxpayer  having  the  knowledge.  The 
different  times  of  making  returns  and  receiving  collections 
formed  an  involved  system.  A  portion  of  the  Act  called 

'"May  i,  1863. 

135  The  new  collectors  were  T.  C.  Green,  Va.;  E.  G.  Cabaniss, 
Ga.;  G.  F.  Neill,  Miss.;  D.  N.  Kennedy,  Tenn.;  A.  B.  Greenwood, 
Ark. 

"'Allan  B.  E.  G.  Cabaniss,  July  30,  1863. 


54 

for  almost  immediate  assessment,  the  date  of  July  1st  for 
the  produce  on  hand  from  1862,  and  for  the  profits  on 
purchases  and  sales  in  1862.  These  taxes  were  to  be  col- 
lected October  I,  1863.  Payments  on  retail  and  wholesale 
business  were  to  be  made  quarterly,  while  many  other  col- 
lections were  postponed  to  1864. 

THE  TAX  IN  KIND. 

The  tax  in  kind  was  the  novel  feature  of  the  system  and 
was  conducted  under  a  separate  organization.  Its  esti- 
mates were  to  be  additional  to  those  of  the  money  return. 
It  was  planned  to  provide  supplies  for  the  army  mainly, 
and  was  capable  of  very  efficient  contribution,  appealing 
strongly  to  the  highest  patriotism  of  the  people.  It  fur- 
nished what  the  government  needed  and  lessened  the  use 
of  currency,  although  the  magnitude  of  its  operations 
made  it  liable  to  great  abuses.  Also  in  subsequent  taxa- 
tion it  served  as  an  instrument  to  prevent  the  Treasury  re- 
ceiving vital  pecuniary  support.  In  Secretary  Memmin- 
ger's  advocacy137  of  the  plan,  he  had  placed  the  possible 
receipts  from  the  tithe  at  an  aggregate  value  of  $83,000,000. 
The  estimate  of  the  Senate  Finance  Committee  in  advance 
was  $135,000,000.  It  was  confidently  expected  that  the 
cotton  tenth  would  materially  supplement  the  Produce 
Loan  stock. 

COLLECTION  BY  THE  ARMY. 

After  the  assessment  of  the  products  of  the  planters,  the 
collection  was  given  over  to  the  army,  unless  commuta- 
tion was  elected  by  the  owner.  Col.  Larkin  Smith,  A.  Q. 
M.  G.,  was  appointed,  May  23,  1863,  to  have  supervision 

137  He  used  the  crop  statistics  of  1860,  although  in  1863  agricul- 
ture was  greatly  diminished.  On  the  other  hand  his  estimate  of 
prices  was  lower  than  the  market  rate,  the  chief  items  being 
28,000,000  bu.  of  corn  at  $1.50  per  bu.,  100,000  bales  of  cotton  at 
$120  each,  3,000,000  bu.  of  wheat  at  $2  per  bu.,  4,000,000  bu.  of 
potatoes  at  $i  per  bu.,  meats  to  value  of  $8,000,000  and  10,000,000 
Ibs.  of  tobacco  at  40  cts. 


55 

of  this  tithe,  and  a  corps  of  68  assistants  were  put  in  the 
eleven  States.  Quartermasters  and  commissaries  serving 
with  the  troops  were  authorized  to  take  the  produce  and 
give  receipts.  Upon  reports  by  these  officers  to  the  dis- 
trict collector,  credits  for  the  amounts  were  entered  on  the 
assessor's  estimates.  After  March,  1864,  the  Tax  Bureau 
of  the  Treasury  transferred  the  entire  management  of  the 
tithe  to  the  War  Department.  The  yield  of  these  resources 

YIELD  FROM  THE  TAX. 

can  be  known  only  by  indirect  measure,  reckoning  from 
the  deductions  for  tithes,  entered  against  the  total  tax 
assessments. 

The  progress  of  the  ingathering  is  indicated  for  the  first 
five  months  by  a  statement138  of  produce/worth  $6,000,000, 
the  main  portion  of  which  was  corn,  wheat,  cured  hay 
and  fodder.  The  report  announced  that  the  tithe  had 
largely  supported  the  armies  in  Virginia  after  September 
ist.  The  record139  to  March  i,  1864,  placed  the  value  of 
the  tenth  at  about  $40,000,000,  using  the  current  market 
prices.  North  Carolina,140  Georgia  and  Alabama  were  the 
chief  sections  from  which  large  supplies  were  drawn. 
From  entire  States  nothing  was  realized,  and  the  fertile 
area  of  others  was  curtailed  by  the  enemy.  Moreover, 
transportation  was  attended  with  increasing  difficulties, 
giving  cause  for  complaints  against  the  efficiency  of  the 
tax.  Its  thorough  management  was  a  highly  responsible 
and  complex  undertaking  in  its-  provisions  for  collecting, 
parceling,  storage  and  protection.  It  is  not  strange  that 
large  quantities  of  the  produce  were  lost,  aside  from  the 
neglect  and  incompetency  charged.141  The  expense  of  the 

138  Report  of  Col.  Smith,  Nov.  30,  1869. 

139  Richmond  Enquirer,  Mch.  8,  1863. 

40  N.  C.  gave  in  8  months,  517,687  bu.  of  corn,  3,950,000  fbs  of 
cured  hay,  10,280,000  ibs  of  cured  fodder,  919,000  bu.  of  oats.  1,500,- 
ooo  Ibs  of  tobacco. 

141Echols  of  Ga.,  December  21,  1864,  Richmond  Enquirer; 
Stephen's  Const.  View,  Vol.  II,  p.  572. 


•HE 

RSSTY 

OF 


56 

collection  was  borne  by  the  army,  and  for  six  months  of 
1864  the  appropriation  was  $12,250,000.  In  the  first  opera- 
tions of  Col.  Smith  the  cost  had  been  7%.  From  reports 
of  the  Tax  Bureau  and  Secretary  Trenholm142  the  probable 
yield  of  the  tax  in  kind  may  be  placed  at  $145,000,000. 

PRICE  COMMISSIONS. 

The  tithe  was  of  service  in  postponing  and  lessening  the 
necessity  of  the  impressment  of  supplies  for  the  army. 
This  practice  had  been  resorted  to  in  1862,  and  the  planters 
were  so  dissatisfied  with  the  prices  assigned,  that  the  crops 
were  decreased.  As  an  arbitration  of  the  dispute,  Con- 
gress, on  March  26,  1863,  created  a  Board  of  Commission- 
ers in  each  State,  whose  duty  it  was  to  publish  a  schedule 
of  prices  every  two  months.  Beginning  in  May  with  56 
articles,  the  list  had  grown  to  93  by  November.  There  was 
yet  complaint  that  the  schedule  did  not  conform  to  market 
prices,  and  a  Commissioners'  Convention  in  Augusta,  Ga., 
October  26,  1863,  endeavored  by  a  series143  of  resolutions 
to  regulate  the  abuses  and  inequalities.  Through  1864  the 
undervaluation  continued,  and  a  certain  sharp  increase  of 
the  schedule  in  Virginia  was  revoked144  because  of  the 
presumed  influence  on  the  currency. 

ACT  SLOW  AND  INADEQUATE. 

The  administration  of  the  Tax  Act  of  1863  called  for  a 
multiplicity  of  executive  directions.  The  law  was  ambigu- 
ous on  many  points,  and  the  rulings  of  the  Commissioner 
had  vast  scope  and  authority.  A  complete  system  of  regu- 
lations was  issued  on  December  23,  1863,  replacing  the 
several  provisional  orders  and  minimizing  further  causes 
of  delay  by  the  officials.  The  assessments  of  quarterly 
sales,  surplus  and  occupations  were  variously  completed, 

'"Report  of  Nov.  7,  1864. 
"'Richmond  Sentinel,  Nov.  2,  1863. 
144  Richmond  Enquirer,  Aug.  i,  1864. 


57 

and  the  first  receipts  were  realized  by  September,  Wake 
county,  North  Carolina,  having  the  credit.  By  October, 
the  volume145  of  payment  was  well  increased,  yet  the  cities 
were  not  returning  the  proportion  expected,  and  of  their 
dues  Augusta  and  Richmond  had  discharged  only  one- 
third  by  the  end  of  the  year.  Nine  of  the  States  undertook 
to  handle  the  tax  on  quarterly  sales. 

The  chief  collectors  announced146  .that  speculators 
evaded  the  levy  on  profits  and  many  other  frauds  and  fail- 
ures were  noted.  After  a  few  months,  it  was  generally 
admitted  that  the  Act  would  not  bring  in  an  adequate  tax. 
This  was  caused  partly  by  evasion  and  the  system  itself, 
yet  largely  by  increased  national  demand  and  higher  prices. 
The  President  said  the  taxation  was  too  slow  for  exigen- 
cies since  it  was  not  available  within  a  year.  But  that  was 
a  commendable  showing  in  comparison  with  the  War  Tax 
of  August,  1861,  which  had  not  been  announced  as  com- 
pleted until  November,  1863,  the  avails  having  been  raised 
to  $19,500,000  from  $16,660,000,  reported  a  year  earlier. 

By  February,  1864,  the  Commissioner  had  collected  $35,- 
000,000  from  seven  States,  Georgia  leading  with  $10,876,- 
ooo.  Up  to  April  16,  1864,  receipts  were  reported147  of 
$82,262,349  from  471  collection  districts;  133  districts  had 
been  cut  off  by  the  enemy,  an  aggregate  embracing  one- 
third  of  the  population  of  the  Confederacy.  The  actual 
value  of  this  amount  of  revenue  must  be  viewed  in  the 
light  of  the  depreciated  currency  of  the  time.  The  state- 
ment of  Mr.  Allan  was  that  property  had  become  enhanced 
five-fold  over  the  prices  of  1860,  although  at  the  same  time 
he  quoted  gold  at  $i  for  $17  Treasury  notes.  It  was  the 
persistent  argument  of  the  Treasury  officials  and  of  the 
press  throughout  the  war  that  on  account  of  the  peculiar 
conditions  in  the  South  gold  was  no  longer  the  standard 
of  value,  but  land  and  negroes  had  taken  its  place. 

"* Allan's  War  Tax  Correspondence  Book  "C." 

146  W.  K.  Lane's  letter,  Nov.  17,  1863;  J.  D.  Pope's,  Jan.  4,  1864. 

'"Report  to  Congress,  Apr.  29,  1864. 


58 

DIRECT  TAXATION. 

The  recognition  of  the  inadequacy  of  the  Act  in  force 
brought  the  sentiment  in  favor  of  direct  taxation  to  pre- 
vail. Secretary  Memminger,  in  his  report148  to  the  fourth 
session  of  the  First  Congress,  on  December  7,  1863,  said 
that  the  necessities  of  the  situation  no  longer  allowed  a 
hesitancy  for  the  letter  of  the  Constitution,  requiring  a 
census  to  be  taken  before  direct  taxes  could  be  levied. 
•'The  land  and  negroes  in  the  Confederate  States  con- 
tributed two-thirds  of  the  taxable  values,  and  the  policy 
on  the  part  of  the  States  which  had  ratified  the  Constitu- 
tion, was  to  withhold  from  contribution  to  the  mainten- 
ance of  the  war  the  very  property  for  which  they  were 
contending.  In  war  time  the  tax  ad  valorem  would  be 
«even  more  equitable  than  one  based  on  representation, 
since  so  many  districts  were  occupied  by  the  enemy." 
President  Davis  joined  the  Secretary  in  urging  a  property 
tax;  he  said  in  his  message  of  December  8,  1863,  "The 
special  mode  for  levying  a  tax  is  now  impracticable,  but 
Congress  is  not  excused  from  the  general  duty;  I  shall 
approve  any  taxation  of  yours  in  any  mode  which  puts  the 
burden  uniformly  on  the  whole  property." 

CONFEDERATE  INEFFICIENT  TAXATION. 

The  Treasury  asked  for  a  rate  of  $%  upon  a  taxable 
basis  of  $3,000,000,000  of  property,  and  allowing  20%  for 
evasions,  expenses  and  contingencies,  the  proceeds  were 
reckoned  at  $120,000,000.  Half  of  this  sum  was  to  go  for 
supplies  and  half  to  sustain  a  new  issue  of  bonds  planned  to 
consolidate  the  public  debt.  It  was  asserted  that  the  bonds 
would  not  secure  credit  unless  definitely  guaranteed  by  a 
tax  on  real  property.  The  House  showed  its  estimate  of 
the  need  of  financial  legislation  by  refusing  to  refer  the 
recommendations  to  the  Ways  and  Means  Committee,  or 
to  the  committee  of  the  whole,  but  a  special  committee  of 

148  Capers's  Memminger,  pp.  457-476. 


59 

one  from  each  State  was  instructed149  to  prepare  a  bill  for 
taxation  upon  real  and  personal  property,  according  to 
values.  There  was  again  a  popular  cry  for  heavy  taxation, 
but  the  enormous  rise  in  prices  since  the  original  act  made 
estimates  of  the  amount  very  uncertain.  The  House  was 
disposed  15°  to  levy  a  sum  aggregating  $400,000,000,  and 
the  suggestion  of  a  10%  call  on  property  had  many  sup- 
porters. But  the  traditional  policy  of  the  avoidance  of 
direct  payments  could  not  be  forgotten,  and  the  spirit  in 
the  Senate  was  opposed  to  that  of  the  House.  Gov. 
Brown,  of  Georgia,  even  called  strongly  for  a  repeal  of  the 
tax  in  kind.  Final  action  on  the  bill  was  agaip  left  to  the 
day  of  adjournment,  when  the  rate  proposed  by  Mr.  Meni- 
minger  was  finally  accepted. 

However,  there  were  various  amendments  to  the  Act  of 
1863  of  such  a  character  as  to  emasculate  it  entirely  and 
complete  the  record  of  the  Confederate  Congress  for  in- 

ACT  OF  FEBRUARY,  1864. 

efficient  taxation.  The  bill  was  passed  on  February  17, 
1864,  along  with  the  Currency  Act  and  Compulsory  Fund- 
ing. Its  chief  feature  was  the  system  of  rebates ;  the  new 
5%  tax  on  property  was  offset  by  the  tax  in  kind,  and 
the  income  tax  was  credited  with  the  ad  valorem  tax  on 
property.  The  additions151  of  the  law  were  taxes  of  10% 
on  gold  and  silver  plate  and  watches,  etc.;  5%  on  gold 
and  silver  coin,  bullion,  and  dust  held  by  banks  or  people ; 
5%  on  solvent  credits,  bills  of  exchange,  moneys  held 
abroad  and  on  paper  issued  as  currency;  10%  in  addition 
to  the  tax  of  1863  on  profits  made  in  trade  and  business 
from  January  I,  1863-65;  also  25%  on  profits  exceeding 
25%  made  by  any  bank,  joint  stock  company,  corporation, 
or  manufacturing  concern.  In  the  assessments  property 
was  strangely  rated  at  the  prices  of  1861,  unless  sold  after 

148  Dec.  9,  1863. 

""Montgomery  Mail,  Jan.  12,  1864. 

"'Acts  of  Congress,  Statute  IV,  Ch.  64. 


6o 

1863,  while  other  values  were  estimated  in  current  prices 
of  February  17,  1864. 

CRITICISMS  AND  DEFECTS. 

The  application  of  these  laws  called  forth  the  most  bitter 
criticism  and  opposition.  The  two  rates  of  assessment 
were  charged  to  have  been  made  in  the  interest  of  the 
agricultural  class.  The  banks  were  very  persistent  ob- 
jectors. A  convention  of  the  Virginia  and  North  Carolina 
banks  was  held  to  protest.  The  memorial  of  the  South 
Carolina  banks  of  April  7,  i864,152  summarized  their  griev- 
ances ;  they  were  taxed  twice,  on  their  capital  and  on  their 
deposits  and  issues,  which  were  invested  in  solvent  securi- 
ties. As  the  credits  exceeded  the  capital  two  and  three- 
fold, the  banks  were  contributing  from  15  to  20%.  Be- 
sides the  stock  was  valued  at  such  a  high  rate  that  the 
tax  often  exceeded  the  dividends.  The  tax  on  government 
securities  was  loudly  denounced  as  a  breach  of  contract. 
The  levy  on  all  these  forms  of  investment  worked  a  great 
hardship.  While  it  was  aimed  against  speculators,  the 
chief  sufferers  were  trust  funds,  widows  and  those  depend- 
ent on  such  incomes. 

The  landed  interests  in  contrast  bore  a  valuation  ad- 
mittedly five  times  less  in  proportion,  and  probably  much 
lower.  Also,  the  tax  on  coin  had  a  special  interpretation, 
for  the  "amount"  of  all  gold  and  silver  coin  was  the  word- 
ing of  the  section.  The  levy  was  made  accordingly  in  kind 
and  the  share  of  coin  then  converted  into  currency  notes 
at  the  ratio  of  18  to  I  by  the  Treasury  order  of  March  9, 

1864.  This  action  was  held  to  serve  as  a  check  on  de- 
preciation, as   if  the  gold  in  itself  was  to  be  legislated 
against.     Thus  land  worth  $10,000  on  the  basis  of  1860, 
paid  $500  tax  in  notes,  while  $10.000  in  coin  was  assessed 
$9,000  in  paper. 

But  the  culminating  defect  of  the  amended  Act  was  that 

162  Report  to  Memminger. 


6i 

the  tax  could  be  paid  by  the  four  per  cent,  certificates  in 
which  the  compulsory  funding  of  the  redundant  notes  was 
proceeding.  The  wise  plan  of  Mr.  Memminger  had  been 
to  use  the  coupons  of  the  new  bond  issue  and  the  new 
notes,  but  this  alteration  by  Congress  precluded  the  Treas- 
ury's receiving  any  considerable  pecuniary  aid  from  the 
Act  in  1864. 

REFORM  OF  THE  CUMBROUS  SYSTEM  DEMANDED. 

On  the  assembling  of  the  Second  Congress  on  May  2, 
1864,  the  Secretary  demanded153  firmly  the  reforms  of  the 
system,  specifying  particularly  the  repeal  of  the  tax  in  kind, 
deduction  from  the  five  per  cent,  property  tax,  the  repeal 
of  the  deduction  of  the  ad  valorem  tax  from  the  income 
tax  and  a  correction  of  the  discrimination  as  to  the  dates 
of  assessment  of  real  and  personal  property  with  respect 
to  other  values.  He  also  pointed  out  the  inequalities  suf- 
fered by  the  banks  and  corporations.  His  arraignment  of 
the  system  gives  an  estimate  of  what  real  worth  there  was 
in  this  presumedly  large  attempt  at  taxation.  He  said  it 
was  marked  by  inequality,  amounting  to  injustice,  and  so 
cumbrous  and  intricate  that  delay  and  disappointment  were 
its  inevitable  results. 

FURTHER  COMPLICATIONS. 

Congress  refused  to  make  the  chief  reforms  and  brought 
the  final  alienation  with  Mr.  Memminger.  Moreover,  to 
meet  the  increased  pay  of  the  troops,  the  Soldiers'  Tax 
was  created,  an  added  20%  to  all  assessments  then  opera- 
tive. On  the  last  day  of  the  session,  June  I4th,  there  was 
an  amendment154  to  the  Acts  of  April  24,  1863,  and  of 
February  17,  1864,  to  the  extent  of  relieving  the  banks 
merely  of  the  tax  on  deposits.  Another  effort  was  made 
to  reach  speculation  in  an  extra  30%  tax  placed  against 
profits  realized  on  trade  and  sale  between  February  I7th 


1SS  Capers's  Memminger,  pp.  484-7. 

154  Acts  of  2nd  Congress,  Statute  I,  Ch.,,44. 


62 

and  July  i,  1864.  Congress  approved  the  ruling  of  the  $% 
tax  on  coin  or  exchange  to  be  in  specie  or  in  notes  at  rela- 
tive value,  i.  e.,  market  rate,  thus  discrediting  its  own 
money  by  legislative  sanction. 

ADMINISTRATION  OF  THE  MEASURE. 

There  had  been  ambiguity  as  to  which  year  the  abate- 
ment of  the  tax  in  kind  had  application,  and  as  the  general 
taxes  were  due  June  I,  1864,  the  property  tax  would  be 
collected  in  advance  of  the  ascertaining  of  the  tithe.  Fur- 
ther delay  resulted  at  this  juncture  by  the  order155  that  the 
property  tax  be  suspended  until  the  value  of  the  tenth  was 
known.  Hence,  when  the  commissioner  made  his  re- 
port,156 the  collections  were  $118,000,000  on  an  assessment 
of  $145,527,421,  a  comparatively  small  increase  over  the 
report  of  six  months  earlier.  This  total  included  the  re- 
ceipts under  the  Acts  of  April  24,  1863,  February  17  and 
June  14,  1864,  and  was  the  taxation  for  two  years  on 
several  sources  of  revenue,  being  also  inclusive  of  the  levy 
on  surplus  products  of  1862. 

No  complete  new  assessment  of  property  other  than  the 
valuation  under  the  War  Tax  of  1861  was  made.  In  pre- 
paring the  statements  there  was  much  approximate157 
figuring.  The  Commissioner  had  to  estimate  the  probable 
portion  of  the  territory  in  the  possession  of  the  enemy  and 
then  make  deductions.  Using  the  assessment  return  of 
1861  for  a  State,  to  this  would  be  added  20%  for  property 
not  subject  then,  but  taxable  under  the  Acts  of  1863-64. 

185  Regulations  of  Commissioner  Allan,  June  14,  1864. 

156  To  Secretary  Trenholm,  Oct.  28,  1864,  Letter  book  "E." 

167 The  tax  for  Georgia  was:  Real  and  personal  property,  assess- 
ed under  Act  of  Aug.  19,  1861, $564,173,946.82.  To  this  add  20% 

for  property,  taxable  after  1861, $112,834,789.36.  Total,  $677,. 

008,736.18.  Tax  thereon  at  5%  is  $33,850,436.80;  jewelry  and 
watches  (say)  $2,500,000,  at  5%  more,  equals  $125,000,  total,  $33,- 
975,036.60. 

Deductions,  destroyed  by  the  enemy  (say)  5%,  $1,698,771,  credit 
of  tax  in  kind  (say)  two-thirds,  $21,517,776;  credit  of  income  tax 
(say)  10%,  $3,227,666,  net  proceeds,  $7,431,218. 


63 

From  the  $%  levy  on  this  sum,  successive  deductions  were 
made  for  the  destroyed  proportion  and  for  the  credits  by 
the  tax  in  kind,  frequently  two-thirds  of  the  total,  and  by 
the  income  tax  reckoned  at  10%. 

These  rebates,  charged  against  the  property  tax,  left 
comparatively  small  net  proceeds  to  be  collected  from 
April  to  October,  1864.  With  the  removal  of  the  system 
of  abatements,  the  total  receipts  would  have  been  almost 
trebled,  counting  the  tax  in  kind  at  $145,000,000  and  the 
income  tax  with  other  credits  at  a  less  figure.  The  esti- 
mate158 of  Secretary  Trenholm  was  $374,188,414. 

Mr.  Memminger  had  asked  for  too  small  an  amount  at 
the  inception  of  the  Act  of  1863.  Congress  had  been  still 
more  niggardly  in  responding  and  finally  had  so  vitiated 
the  efficiency  of  the  revenues  voted,  that  the  Treasury 
was  forced  to  continue  to  the  end  the  policy  it  too  readily- 
had  adopted  at  the  beginning,  the  payment  of  its  debts  with 
government  paper. 

168  Report  to  Congress,  Nov.  7,  1864. 


64 


CHAPTER  IV.— REPUDIATION. 

The  financial  policy  of  the  Confederacy  was  inaugurated 
with  loans  and  issues  of  government  money.  When  the 
circulation  of  the  banks  of  the  South  had  been  more  than 
displaced  in  the  first  year  of  the  war,  the  emission  of  paper 
did  not  cease.  With  the  certainty  of  depreciation  realized, 
the  problem  then  was  to  retire  the  surplus  currency  by 
some  measure  that  would  make  room  for  further  new  is- 
sues of  notes  to  meet  the  increasing  appropriations.  The 
reliance  on  the  efrfcacy  of  the  provisions  for  funding  was 
implicit.  When  the  first  payment  of  interest  on  the  bonds 
in  January,  1862,  had  been  made  in  coin,  there  was  a 
standard  set  that  the  administration  had  not  adequately 
planned  to  continue.  The  succeeding  payments  on  bonds 
had  to  be  made  in  Treasury  notes,  and  these  beginning  to 
depreciate,  the  bonds  likewise  cheapened.  The  working 
of  this  system  was  such  that  the  one  resource  proved  an 
imperfect  check  in  preventing  the  abuse  of  the  other. 

Again,  the  payment  of  interest  on  Treasury  notes  in 
1862  operated  against  a  larger  sale  of  bonds  in  that  year. 
The  guarantee  back  of  the  bonds  was  not  definite  enough. 
The  property  of  the  Confederacy  was  viewed  as  a  security 
only  in  a  general  way.  The  continued  higher  quotations 
of  the  first  loan  of  fifteen  millions,  with  its  pledge  of  the 
duty  of  cotton  export,  testified  to  the  superiority  of  this 
stock.  As  a  pledge  against  the  one  hundred  million  loan, 
the  AVar  Tax  was  not  sufficient  to  give  absolute  security. 
Suggested  reforms159  always  included  a  plan  for  coin  or 
cotton  back  of  the  government  obligation. 

As  the  emission  of  notes  was  the  established  resource 
to  replenish  the  Treasury,  so  changes  in  the  methods  of 
funding  became  a  sovereign  remedy  for  redundancy,  be- 
ing directed  to  induce  a  larger  use  of  bonds.  Yet  the  rate 

109 Richmond  Examiner,  Apr.  i,  1862;  Richmond  Sentinel,  Aug.  12, 
1863. 


65 

on  the  highest  stock,  eight  per  cent.,  was  small  in  com- 
parison with  the  profits  to  be  gained  in  the  most  ordinary 
trade.  An  accurate  reflex  of  the  depreciation  of  the 
finances  was  found  in  the  increase  of  speculation.  This 
contagion160  was  well  spread  in  1862,  and  in  the  tendency 
to  dispose  of  the  notes  quickly,  prices  were  steadily  mount- 
ing and  the  standards  of  gain  proportionately  swollen. 

A  CURRENCY  CORRECTIVE. 

In  this  condition  of  affairs  Congress  took  its  first  step 
in  altering  the  terms  of  the  contract  offered  for  funding 
notes  into  bonds.     It  was  in  the  second  session  after  the 
unfortunate  bill  for  taxation  in  the  shape  of  a  forced  loan 
had  been  postponed  on  the  plea  that  the  country  was  not 
yet  ready.     On  October  9,  1862,  a  bill  was  reported  by 
Chairman  Kenner  that  reduced,  after  December  1st,  the 
interest  of  all  bonds  to  6%,  and  the  holders  of  notes  were 
given  four  months  to  get  the  advantage  of  the  higher  rate 
of  funding.    This  was  amended  by  the  Senate  to  7%,  and 
six  months  allowed  in  which  note  holders  could  fund  at  &%. 
The  bill  was  passed  October  i^th,  and  constituted  the  sole 
currency  corrective  of  the  second  year  of  the  Confederacy. 
The  advocates  of  the  measure  believed  that  it  would 
bring  in  so  vast  a  quantity  of  notes  as  to  remedy  deprecia- 
tion and  also  would  so  enhance  the  value  of  8%  bonds  that 
the  Secretary  would  make  large  sales.     The   Richmond 
Whig  was  incredulous  and  expressed161  the  opinion  that 
Congress,  in  announcing  the  panacea  of  one  per  cent,  dif- 
ference in  interest,  had  undertaken  to  settle  the  currency 
question  by  an  expedient  which  seemed  trifling  and  con- 
temptible in  view  of  the  magnitude  of  the  attempted  re- 
sults.   In  December  the  most  sanguine  estimated  that  by 
April  22,  1863,  the  limit,  $120,000,000  of  notes,  would  be 
funded  and  thus  relieve  the  new  issues,  which  were  half  a 

180 Examiner,  Sept.  23,  Oct.  22,  1862. 
141  Oct.  14,  1862. 


66 

million  daily.  In  February  the  experiment162  was  going 
well.  The  new  notes,  fundable  in  J%  bonds,  being  issued 
after  December  I,  1862,  were  displacing  the  old  notes, 
whose  holders  hoarded  them.  The  bonds  had  gone  to  a 
premium  of  looj,  and  by  April  reached  105.  The  fund- 
ing163 induced  by  the  Act  amounted  to  over  $50,000,000 
from  January  1st,  as  against  $17,500,000  for  the  previous 
five  months.  But  within  the  same  period  $130,000,000  in 
notes  had  been  paid  out,  and  this  increased  scale  of  fund- 
ing was  yet  far  too  small. 

THE  SECRETARY'S  FUNDING  SCHEME. 

The  Secretary  in  his  report  of  January  7,  1863,  had 
marked  out  the  way  for  the  extension  of  the  policy  which 
had  met  with  such  a  fair  measure  of  success.  His  recom- 
mendation16* was  radical  and  a  precursor  of  the  final  des- 
perate solution  of  the  currency  difficulties.  It  was,  that 
after  a  reasonable  lapse  of  time  the  Treasury  notes,  bear- 
ing date  previous  to  December  i,  1862,  should  cease  to 
be  currency.  To  carry  out  this  plan  the  notes,  already 
fundable  until  April  22,  1863,  in  8%  bonds,  and  thereafter 
in  7%  bonds,  must  have  a  period  of  limitation  also  for 
the  lower  rate  of  conversion,  and  that  date  to  be  July  I, 
1863.  The  results  from  the  limitation  to  8%  funding  were 
believed  to  have  failed  of  their  highest  efficiency,  because 
six  months  grace  was  too  long  a  time  allowed  for  its 
operation.  Sixty  days  were  now  considered  ample  as  a 
stimulant  for  a  new  funding  provision.  The  financial 
policy  was  to  be  definitely  changed  from  one  of  offering 
inducements  to  take  the  government  obligations  to  that 
of  applying  a  small  portion  of  constraint  on  the  note 
holders.  An  abundance  of  money  in  the  country  was 

162  Whig,  Feb.  5,  1863. 

165  Letter  Book  "E,"  Apr.  11,  1863. 

164  Caper's  Memminger,  pp.  445,  446. 


67 

proven  by  the  large  sums  held  on  deposit  and  by  the 
amounts  invested  at  interest  in  private  hands,  as  reported 
by  the  War  Tax. 

The  Secretary  believed  that  two-thirds  of  the  currency 
could  be  funded  without  material  danger  to  private  inter- 
ests. He  met  the  charge  of  infringement  of  contract  with 
a  combination  of  excuse  and  argument.  The  first  plea 
was  that  Congress  had  already  established  the  principle 
by  the  act  reducing  the  interest  on  the  bonds  to  seven  per 
cent.  Again,  the  time  of  the  contract  was  not  prohibitory 
of  change,  if  a  full  opportunity  was  allowed  to  receive  the 
benefits  of  its  performance.  Finally  the  modification  of 
the  conditions  of  the  note  would  be  a  benefit  to  both 
parties  in  the  increased  purchasing  power  of  the  remain- 
ing currency.  Thus  expediency  was  the  main  determinant, 
however  questionable  the  legal  warrant.  To  the  further 
objection  that  the  note  lost  its  value  as  money,  Mr.  Mem- 
minger  replied  that  although  this  function  was  gone,  its 
intrinsic  value  would  be  unimpaired,  being  yet  receivable 
for  public  dues  and  having  the  faith  and  property  of  the 
Confederate  States  pledged  for  its  payment. 

But  it  was  evident  that  a  body  of  notes  yet  accepted 
for  government  obligations  would  continue  to  circulate  and 
choke  the  channels  of  trade,  and  it  was  only  a  question  of 
time  until  more  heroic  measures  must  cause  their  removal. 
The  Treasury  may  be  judged  to  have  realized  that  this 
limited  funding  measure  was  a  temporary  expedient  at 
best.  No  sudden  large  contraction  was  feared  by  reason 
of  it,  for  the  circulation  of  new  notes  for  the  six  months 
of  1863  was  calculated  to  reach  $200,000,000,  a  very  low 
estimate.  Then  the  situation  of  January,  1863,  woutd  be 
repeated  and  the  same  redundancy  must  be  again  faced. 
The  possible  depreciation  in  the  price  of  the  bonds  from 
the  large  funding  of  notes  induced  was  looked  upon  as  the 
lesser  of  two  evils,  since  the  depreciation  of  the  notes  much 
exceeded  that  of  the  market  value  of  the  bonds. 


68 

ACTION  OF  CONGRESS. 

The  recommendations  of  the  Secretary  found  Congress 
ready  with  many  plans  of  tampering  with  the  currency, 
including  an  advocacy  of  a  legal  tender  measure.     Mr. 
Baldwin,  of  Virginia,  had  the  anticipatory  plan  of  funding 
all  notes  prior  to  April  I,  1863,  at  a  monthly  decline  in 
the  interest  rate  of  bonds  of  one  per  cent,  from  July  to 
December  and  then  declare  all  notes  discharged.    Another 
measure  was  to  exchange  the  old  issue  on  the  basis  of  - 
$300,  allowing  $200  in  bonds  and  $100  in  legal  tender. 
The  bill  of  Mr.  Hunter,  chairman  of  the  Senate  Finance 
Committee,  was  introduced,  to  embody  the  wishes  of  the 
Treasury,  and  was  passed  January  30,  1863,  with  amend- 
ments.   The  limitation  of  7%  funding  was  July,  buf  notes 
issued  since  December  i,  1862,  were  included,  with  the 
added  privilege  that  after  July  they  could  be  funded  in 
4%  bonds.    The  new  notes  to  be  issued  after  April  2,  1863, 
were  to  have  the  fundable  provision  for  six  months  at  6%, 
and  then  to  be  converted  at  4%.     Mr.  Hunter  admitted 
a  breach  of  promise  in  limiting  the  time  of  funding,  but 
defended  it  as  an  imperative  measure  without  which  the 
currency  must  expand  until  the  public  debt  was  so  large 
that  there  would  be  slight  hope  of  payment. 

When  the  bill  went  to  the  House,  it  was  debated  until 
March  4th,  the  legal  tender  remedy  being  again  urged. 
The  minority  fought  the  measure  on  the  ground  that  the 
periodical  demonetization  of  the  notes  would  be  unintel- 
ligible to  most  people  and  the  funding  not  largely  ob- 
served. However,  the  House  sent  the  bill  back  to  the 
Senate  with  changes  in  the  times  of  funding  which  were 
finally  accepted,  and  the  Act165  as  passed  on  March  23d, 

ALL  KINDS  OF  FINANCIAL  PAPER. 

established  three  classes  of  notes ;  those  prior  to  Decem- 
ber I,  1862,  $290,000,000  originally  in  amount,  were  fund- 
able  in  7%  bonds  until  August  1st,  and  then  ceased  to  be 

186  Acts  of  Congress^,  Statute  III.  Ch.  IX. 
I 


69 

currency;  notes  issued  between  December  I,  1862,  and 
April  7,  1863,  were  fundable  in  7%  bonds  up  to  August  ist, 
and  then  in  4%  stock ;  notes  after  April  6,  1863,  were 
fundable  for  12  months  in  6%  bonds,  and  thereafter  in  4%. 

Besides  the  legislation  on  the  notes,  there  were  many 
other  financial  provisions  in  the  Act.  A  further  use  of 
call  certificates  was  arranged  at  a  lower  rate  of  interest. 
The  six  per  cent,  bonds  and  notes  issued  after  April  i, 
1863,  could  be  put  into  5%  call  certificates.  The  4%  bonds 
were  convertible  into  4%  call  certificates.  All  former  6% 
call  certificates  were  considered  to  be  funded  into  bonds 
on  June  7  and  lost  the  power  of  conversion  into  notes. 
The  seven-thirty  notes  had  been  discontinued  as  an  issue 
when  the  first  limitation  of  funding  began,  and  now  they 
were  also  classed  as  funded. 

While  the  Act  contained  authority  to  issue  $50,000,000 
of  notes  a  month,  it  had  the  provision  that  the  Secretary 
use  any  disposable  means  in  the  Treasury  to  purchase 
notes  until  the  whole  amount  was  reduced  to  $175,000,000. 
To  accomplish  this  three  classes  of  bonds  were  named ;  (i) 
$200,000,000  of  6%  stock,  to  be  sold  to  any  of  the  States  ; 
(2)  if  guaranteed  by  the  States,  the  special  bonds  to  be  sold 
for  notes  to  the  highest  bidder ;  (3)  $100,000,000  of  bonds 
at  6%,  with  coupons,  payable  in  notes  or  in  cotton  certifi- 
cates, which  pledged  the  government  to  pay  in  cotton  at 
the  rate  of  8d.  sterling  and  delivered  within  six  months  at 
certain  points. 

The  first  two  securities  were  never  issued,  but  the  third 
class,  modified  by  the  Act  of  April  30,.  1863,  represented 
the  first  extensive  effort  to  sell  bonds  direct  since  the 
fifteen  million  loan  of  1861.  In  all  seven  classes  of  stock 
were  authorized. 

THE  DEPOSITORIES. 

The  increased  funding  plans  called  for  an  enlargement 
of  the  force  of  depositories.  By  the  Act  of  April  15,  1862, 
there  had  been  an  increase  of  these  officials,  when  to  their 
duties  of  disbursement  and  deposit  were  added  the  ex- 


change  of  certificates  for  notes.  They  were  also  made 
agents  for  the  sale  of  bonds  and  were  the  great  intermedi- 
aries for  the  funding  transactions.  The  notes  were  re- 
ceived by  them  and  forwarded  to  the  Treasury  at  Rich- 
mond, which  performed  the  cancellation  and  sent  back  the 
bonds  in  exchange.  In  March,  1863,  the  demand  to  fund 
before  April  22d  necessitated  the  second  greater  extension 
of  the  depositories.  With  the  passage  of  the  new  law,  it 
was  found  necessary  to  create  a  special  district  in  the 
West,  the  Trans-Mississippi,  which  military  operations  had 
cut  off  from  the  East,  and  Gen.  Kirby  Smith  was  di- 
rected166 to  form  a  Treasury  Note  Division  at  Monroe,  La. 
The  reduction  in  offering  bonds  from  8%  to  7%  for 
notes  did  not  cause  any  cessation  of  funding.  Rather  an 
end  had  been  made  to  the  hoarding  of  notes,  for  the  an- 

FEAR  OF  REPUDIATION. 

ticipation  of  demonetization  was  taking  possession  of  the 
public.  Many  of  the  banks  helped  increase  the  feeling  of 
insecurity  by  refusing  to  take  the  paper  issued  previous 
to  December  I,  1862.  Their  excuse  was  the  desire  to 
induce  greater  funding  within  the  limitation.  It  was  nat- 
ural that  they  attempted  to  save  themselves,  though  later 
they  were  persuaded  to  receive  the  notes  on  deposit.  Cir- 
culation had  been  loyally  given  in  the  past  to  the  govern- 
ment obligations  by  the  people  at  large,  but  now  discrimi- 
nation began  to  be  made  against  issues  of  certain  dates, 
for  it  was  said167  repudiation  had  set  in. 

In  such  a  state  of  affairs  prices  were  not  slow  to  re- 
spond, and  gold  experienced  the  sharpest  and  greatest  rise 
of  the  war.  In  March  the  premium  was  300,  on  April  3Oth 
500,  on  June  n,  700,  and  in  August  $12  in  notes  exchanged 
for  $i  in  specie. 

166July  3,  1863. 

167 Enquirer,  June  20,  1863. 


71 

PROGRESS  OF  FUNDING. 

The  reports  of  funding  showed  that  by  June  8th  $64,- 
000,000  of  notes  had  come  in  under  the  two  Acts  of  Octo- 
ber 13,  1862,  and  March  23,  1863.  This  had  increased  in 
July  to  $84,000,000,  and  the  total  funding  was  announced 
by  Auditor  Robert  Tyler,  on  August  i8th,  to  be  $126,- 
000,000.  This  represented  over  forty-three  per  cent,  of  the 
proscribed  issue  prior  to  December  I,  1862,  yet  it  left  a 
bulk  of  $165,000,000  demonetized  currency  which  was  ac- 
ceptable for  public  dues,  and  the  $120,000,000  of  7-30  notes 
besides  had  full  circulation.  The  relief  was  small  when  the 
extent  of  the  new  issues  was  taken  into  consideration, 
since  within  that  period  $380,000,000  must  have  been  emit- 
ted, the  statement  for  the  three  quarters  ending  September 
30,  1863,  being  $391,000,000. 

A  SANGUINE  SECRETARY. 

Nevertheless,  Mr.  Memminger  was  sanguine,  as  was  his 
wont,  and  in  a  communication168  of  August  24th  to  R.  M. 
T.  Hunter,  said  that  the  funding  had  been  eminently  suc- 
cessful, since  the  outstanding  notes  were  within  the  limits 
of  depreciation  reported  at  the  last  Congress.  At  that 
time  the  total  amount  had  been  three-fold  greater  than 
the  estimated  required  circulation  of  $150,000,000.  The 
reassuring  figuring  of  the  Secretary  was  based  on  the  con- 
clusion that  $150,000,000  of  the  outstanding  circulation 
was  held  west  of  the  Mississippi,  and  there  then  remained 
in  the  east  a  proportion  much  less  than  three  to  one. 
On  the  date  of  July  22d,  he  had  written189  to  G.  B.  Lamar, 
of  Savannah,  that  while  the  loss  of  the  Mississippi  river 
was  a  very  serious  injury  to  the  cause,  yet  in  the  arrange- 
ment of  Providence  it  had  its  counterpoise  in  cutting  off 
the  old  currency  there  from  affecting  this  side.  He 
thought  if  the  Treasury  were  rid  of  the  old  currency  in  the 
east,  it  could  get  along  for  another  year. 

188  Richmond  Enquirer,  Aug.  24,  1863. 
189Letter  Book  "E." 


72 

But  depreciation  could  not  be  arbitrarily  measured  by 
the  excess  of  outstanding  notes  over  an  assumed  limit. 
The  military  reverses  were  adding  their  effect  to  the  finan- 
cial situation  and  the  merchants  of  that  period  were  de- 
manding $12  in  currency  for  goods  that  $i  in  specie  would 
buy. 

FAILURE  IN  THE  SALE  OF  BONDS. 

The  attempted  large  sale  of  bonds  was  likewise  impaired. 
The  stock  offered  had  for  security  what  many  considered 
the  ultimate  standard  of  value  in  the  South.  But  some  of 
the  conditions  of  the  contract  were  in  a  measure  respon- 
sible for  the  wide  non-acceptance  of  the  investment.  The 
$100,000,000  bonds  of  the  Act  of  March  23,  1863,  with  6% 
coupons,  payable  in  notes,  or  cotton,  the  cotton  to  be  de- 
livered within  six  months,  at  the  option  of  the  holder, 
had  the  supplementary  legislation  of  April  30,  1863,  applied 
to  it,  by  which  the  new  stock  was  authorized  to  be  $250,- 
000,000,  with  coupons  payable  in  specie  or  cotton,  the  cot- 
ton to  be  delivered  at  the  option  of  the  government  six 
months  after  peace.  These  cotton  interest  bonds  must  be 
sold  for  Treasury  notes  alone,  and  the  proceeds  devoted 
to  the  purchase  of  produce.  This  was  a  double  scheme  of 
funding  notes  and  buying  cotton,  but  as  the  stock  was  so 
little  taken,  the  resources  for  the  purchase  of  the  staple 
were  limited,  and  from  1863  there  were  slight  accessions 
to  the  holdings  for  the  Produce  Loan. 

Mr.  Memminger  was  not  pleased170  with  the  new  form  of 
bonds,  yet  he  extensively  advertised  them  to  be  offered 
to  the  highest  bidder  on  July  2Oth.  The  stock  was  to  be 
confined  to  home  purchasers,  whereas  the  original  form 
could  have  been  sent  abroad.  The  investment  seemed 
most  profitable,  for  the  $1,000  bond  would  pay  interest  in 
500  Ibs.  of  cotton  at  6d.  or  12^  cents,  while  cotton  was 
then  selling  at  the  ports  from  32  to  40  cents.  The  first 

170 To  Secretary  Mallory,  June  16,  1863. 


73 

bids  were  too  few  to  allow  a  sale,  and  upon  the  second 
advertisement  a  number  of  offers  were  accepted  at  50% 
premium  in  paper  money,  then  rated  at  12  to  i  of  gold. 
The  bonds  were  widely  placed  with  the  depositaries  and 
their  sale  strongly  urged,  with  the  insignificant  result  of 
placing  $2,000,000.  The  quotations  of  the  market  were 
such  that  large  investments  in  these  bonds  must  have  en- 
tailed a  heavy  loss  on  the  government,  if  they  had  ever 
come  to  payment. 

However,  the  public  was  not  taken  by  these  induce- 
ments, since  it  judged  the  cotton  interest  certificates  to  be 
-a  form  of  general  liability  for  the  indefinite  delivery  of  the 
staple.  Other  bonds  were  quoted  at  a  premium  in  Treas- 
ury notes,  but  their  specie  value  declined  through  the  year 
along  with  that  of  the  notes.  The  funding  of  notes  into 
4%  bonds  after  August  ist  was  practically  stopped,  while 
only  a  small  exchange  was  made  for  6%  bonds.  Prices 
grew  intolerably  high  for  necessaries.  Fuel  was  $40  a 
cord  in  Richmond  in  September ;  bacon  sold  at  $3  a  lb., 
and  corn-meal  brought  $12  per  bushel,  when  formerly  it 
sold  at  75  cents.  Prices  in  the  interior  also  fluctuated 
widely.  A  feverish  condition  of  the  markets  was  dominant. 
Bragg's  victory  caused171  gold  to  fall  from  15  to  I  to 
8  to  I. 

DESPERATE  REMEDIES  CONSIDERED. 

The  currency  had  now  reached  a  condition  where  it 
held  the  supreme  public  attention.  Innumerable  remedies 
were  offered  on  every  hand.  The  position  of  the  adminis- 
tration was  expressed  in  a  letter  of  the  Secretary  of  the 
Treasury  to  President  Davis  on  September  I,  1863.  He 
said,  "Plans  for  meetings  to  discuss  aid  are  futile.  I  en- 
deavor to  correspond  with  individual  merchants  and  bank- 
ers. The  two  difficulties  that  confront  us  are  distrust  of 
the  stability  of  the  government, .  to  be  relieved  only  by 

m  Richmond  Sentinel,  Sept.  22,  1863. 


74 

military  successes,  and  expectation  that  the  issue  of  notes 
will  be  indefinitely  continued;  this  can  be  relieved  by  the 
determinate  refusal  of  Congress  and  by  a  resolute  effort 
to  raise  money  by  taxes  and  bonds." 

There  was  nothing  new  in  this  program,  but  the  prevail- 
ing popular  expression  was  likely  to  decide  the  final  policy. 
One  remedy  was  strongly  advocated  by  a  portion  of  the 
press,  and  had  the  approbation  of  many  public  men.  That 
was  the  plan172  of  compulsory  funding,  which  would  free 
the  country  of  its  excessive  currency  by  a  disguised  repu- 
diation. The  two  preceding  Acts  limiting  the  time  of 
funding  were  considered  as  merely  voluntary,  appealing  to 
the  patriotism  of  the  people.  The  banks  and  retired  mer- 
chants had  responded,  but  the  great  majority  of  note  hold- 
ers preferred  to  speculate  in  other  investments.  Now,  as 
conscription  had  to  be  applied  to  the  military  necessities, 
so  forcible173  conversion  of  the  currency  was  to  be  appor- 
tioned as  taxation,  thus  gathering  from  all  their  share. 

BANKERS'  CONVENTION  AT  AUGUSTA. 

The  banks,  as  representing  conservative  interests,  met 
in  Augusta,  Ga.,  November  16  and  17,  1863,  when  thirty- 
six  institutions  from  Georgia,  South  Carolina,  North  Caro- 
lina, Tennessee  and  Virginia,  had  delegates.  Mr.  G.  A. 
Trenholm,  afterwards  Secretary  of  the  Treasury,  present- 
ing a  line  of  arction  adopted  by  the  South  Carolina  banks, 
was  made  chairman  of  the  committee  which  drafted  the 
resolutions  sent  to  Mr.  Memminger  as  the  sense  of  the 
convention.  The  recommendations174  declared  that  dues 
collected,  and  for  which  Treasury  notes  were  made  receiv- 
able, had  proven  inadequate  to  absorb  a  sufficient  amount 
of  notes  to  prevent  redundancy  and  now  measures  must 
be  taken  to  reduce  the  circulation  to  $200,000,000.  The 
following  means  of  doing  this  were  suggested:  (i)  A  new 

172  Charlotte  Democrat,  Nov.  7,  1863. 
"'Richmond  Sentinel,  Oct.  27,  1863. 
174  MSS.  of  Treasury  Department. 


75 

issue  of  coupon  bonds  of  one  billion  dollars,  bearing  six 
per  cent,  interest,  with  the  coupons  payable  in  coin  yearly ;. 
(2)  To  meet  the  wants  of  the  government  in  the  future  a 
sufficient  tax  should  be  adopted,  and  notes  be  issued  as 
little  as  possible;  (3)  A  levy  of  $60,000,000  to  meet  the 
interest  of  the  new  bonds  and  the  tax  be  paid  in  specie  or 
coupons  of  the  bonds  in  lieu  of  coin;  (4)  the  bonds  first 
to  be  apportioned  to  the  States  and  notification  to  the 
taxpayers  in  each  district  to  provide  themselves  for  the 
tax;  the  bonds  hitherto  issued  and  all  Treasury  notes 
were  to  be  received  in  pay  for  the  new  bonds ;  (5)  all  exist- 
ing distinctions  between  Treasury  notes  of  different  issues 
and  dates  were  to  be  abolished ;  (6)  increased  duty  on  all 
imports  and  exports  during  the  war  to  be  paid  in  coin  and 
exchange;  (7)  an  Issue  Department  be  created  and  kept 
separate  from  the  Treasury  Department. 

THE:  SECRETARY'S  PLAN. 

The  Secretary  of  the  Treasury  had  been  invited  to  at- 
tend this  convention,  but  sent  as  his  personal  representa- 
tive Wm.  Johnson,  President  of  the  Charlotte  and  Colum- 
bia R.  R.  Mr.  Memminger  had  well  in  mind  the  plan  that 
he  would  present  to  Congress  in  the  following  month,  and 
his  delegate  was  thoroughly  acquainted  with  it.  It  was  to 
resemble  the  scheme  of  the  banks,  yet  have  peculiar 
features  of  its  own,  as  the  letter  of  instructions  to  Mr. 
Johnson  on  November  nth  discloses.  The  Secretary  told 
him  to  hold  back  part  of  the  plan,  for  it  would  probably 
do  harm  if  there  were  information  beforehand  of  the  pre- 
cise compulsory  measures  intended.  He  was  directed  to 
present  the  other  portions,  and  if  the  convention  approved, 
it  might  advise  measures  which  would  bring  in  those  dis- 
posed to  hold  back. 

Mr.  Memminger  said  it  would  be  very  unfortunate  if  by 
giving  the  politicians  information  in  advance  of  the  action 
of  Congress,  they  should  agitate  against  his  plan.  The 


76 

Treasury  remedy  was  clearly  outlined175  to  G.  B.  Lamar, 
of  Savannah,  the  leading  idea  being  a  fancied  return  to 
specie  values.  A  sufficient  tax,  payable  in  coin,  and  levied 
on  property,  was  to  guarantee  the  interest  on  a  new  loan 
that  would  absorb  the  whole  public  debt.  In  lieu  of  coin, 
the  coupons  of  the  loan  could  pay  the  tax.  The  writer 
said  the  country  was  now  prepared  to  cooperate  in  re- 
tiring the  currency,  and  stringent  provisions  would  make 
the  measure  certain,  for  no  more  risks  could  be  run. 

CRITICISMS  OF  AUGUSTA  PLAN. 

The  Augusta  plan  caused  considerable  discussion  and 
was  criticised  as  being  impracticable:  The  nature  of  the 
objections  was  that  the  distrust  of  the  government  would 
not  allow  a  sum  of  bonds  to  be  taken  that  was  twenty 
times  the  banking  capital  of  the  South,  and  that  little  short 
of  general  confiscation  would  put  the  currency  on  a  safe 
basis.  There  had  been  from  time  to  time  various  expres- 
sions176 of  a  want  of  confidence  in  ultimate  redemption. 
In  the  main,  the  sentiment177  had  grown  more  pronounced 
in  favor  of  compulsory  funding. 

TH£  SHATTERED  CURRENCY. 

The  Secretary  matured  his  plans,  bearing  a  marked  re- 
semblance to  that  of  the  banks,  yet  containing  features 
of  temporizing  and  of  radical  variance.  His  statement178 
to  the  Fourth  Session  of  Congress  made  evident  the  un- 
sound condition  of  the  finances.  The  receipts179  of  the 
Treasury  from  January  1st  to  September  30,  1863,  had 
been  $601,522,893,  and  the  expenditures  $519,368,559. 
Civil  purposes  had  demanded  $11,629,278,  while  war  re- 

175  Letter  of  Nov.  9,  Book  "E." 

"'Augusta  Chronicle,  Sept.  26,  1863. 

177 Richmond  Enquirer,  Nov.  19,  1863. 

178  Caper's  Memminger,  pp.  457,  458. 

"'Bonds  were  credited  as  follows:  8%  stock,  $107,292,900;  7%, 
$38,737,650;  6%,  $6,810,000;  call  certificates,  $23,475,100.  Treasury- 
note  issues  were  $391,623,530. 


77 

quired  the  balance,  excepting  $32,212,290  on  the  public 
debt  and  $59,000,000  for  notes  cancelled.  At  the  same 
date  $65,000,000  of  notes  were  held  for  cancellation.  The 
funded  debt  had  reached  $293,000,000;  the  unfunded  was 
$701,500,000,  consisting  of  notes,  excepting  $26,000,000 
five  per  cent,  call  certificates. 

Of  the  total  receipts,  notes  had  supplied  65  per  cent,  and 
loans  30  per  cent.,  but  the  very  large  part  of  the  latter  was 
the  compulsory  creation  of  the  funding  by  limitation  of 
the  old  and  new  issues  of  notes. 

Taxation  in  this  period  of  rapid  depreciation  had  fur- 
nished a  proportion  of  two-thirds  of  one  per  cent.  The 
proportion  in  the  previous  report,  from  the  establishment 
of  the  permanent  government,  February  i8th  to  December 
31,  1862,  was  seventy  per  cent,  from  notes,  twenty-two  per 
cent,  from  loans  and  three  and  two-thirds  per  cent,  from 
taxation. 

On  September  30,  1863,  there  were  $476,000,000  of  un- 
drawn appropriations.  The  estimates  for  expenses  up  to 
July  i,  1864,  were  $475,500,000.  Doubling  this  latter  sum 
to  have  the  total  for  the  calendar  year,  a  need  to  provide 
for  almost  one  billion  and  a  half  dollars  faced  Congress 
when  it  met  December  7,  1863.  It  was  admitted  officially 
that  prices  were  inflated  five-fold,  while  at  the  same  time 
tax  assessments  were  made  at  a  rate  of  ten  to  one  for  gold. 

BILLION  DOLLAR  LOAN  SCHEME. 

The  administration  program180  was  directed  to  the  ab- 
sorption of  the  mass  of  notes.  Accepting  $200,000,000  as 
a  necessary  circulation,  $500,000,000  had  to  be  retired. 
With  such  a  reduction  prices  were  expected  to  become 
more  normal,  and  the  expenditures  for  1864  would  be 
about  $400,000,000.  The  oft-quoted  fifteen  million  loan 
was  taken  as  a  model,  and  a  new  loan  of  one  billion,  pay- 
able in  twenty  years,  was  projected,  whose  six  per  cent. 

180  MSS.  of  Treasury  Department. 


interest  coupons  should  be  made  available  in  public  pay- 
ments as  the  equivalent  of  specie  dues.  This  loan  was  to 
serve  a  double  purpose,  $500,000,000  to  be  devoted  to  the 
funding  of  the  excess  of  notes,  and  $500,000,000  to  be  sold 
to  furnish  supplies  and  to  be  exchanged  to  consolidate  the 
debt  already  funded.  This  new  stock  was  to  be  made  pre- 
sumably as  good  as  gold  by  having  specifically  pledged  for 
its  interest  $60,000,000  of  taxes  on  all  values,  to  be  paid  in 
coin  or  the  interest  coupons  of  this  loan.  Taxation  was 
conceived  to  create  a  similar  demand  for  these  coupons 
to  that  which  the  export  duty  on  cotton  fixed  for  the  cou- 
pons181 of  the  fifteen  million  loan,  and  thus  the  bonds  were 
said  by  the  Secretary  to  have  the  best  security  which  the 
government  had  yet  offered.  In  addition,  for  the  ultimate 
redemption  and  for  the  interest  of  the  bonds  not  used  in 
funding  there  was  to  be  a  definite  guarantee  of  a  duty  on 
exports  and  imports  for  a  period  of  five  years  after  peace. 

COMPULSORY  FUNDING  THE  CHIEF  FEATURE. 

The  new  obligation  of  the  Treasury  remedial  plan  re- 
sembled that  of  the  Augusta  Convention,  excepting  that 
the  interest  of  the  bonds  and,  preferably,  the  taxes,  were 
to  be  paid  in  specie  by  the  Augusta  plan,  instead  of  some 
arbitrary  equivalent  of  specie.  In  further  agreement,  in 
order  to  prohibit  future  over-issue,  the  Secretary  asked 
Congress  for  an  absolute  limit  of  $200,000,000  of  notes. 
But  the  compulsory  funding  was  the  feature  of  the  recom- 
mendations, which  in  severity  well  answered  the  popular 
clamor  and  at  the  same  time  was  certain  to  meet  the  con- 
demnation of  the  conservative  interests.  It  required  all 
notes  in  excess  of  $200,000,000  to  be  funded  by  April  i, 
1864,  east  of  the  Mississippi,  and  by  July  1st  west  of  the 
Mississippi.  After  these  dates  the  notes  not  only  lost  their 
funding  privilege,  as  in  the  Act  of  March  23,  1863,  but 
ceased  to  be  receivable  for  public  dues.  They  remained 

181  Capers's  Memminger,  pg.  467. 


79 

only  as  evidences  of  debt  payable  according  to  their  tenor. 
All  notes  were  required  by  the  plan  to  be  funded  except 
those  under  five  dollars.  The  $200,000,000  of  the  old  cur- 
rency not  immediately  retired  could  be  exchanged  within 
six  months  for  an  equal  sum  of  the  definitely  limited  new 
issue.  These  notes  were  to  be  accepted  along  with  the 
interest  coupons  for  the  proposed  property  tax. 

SOME  JUSTIFICATION  URGED. 

The  earlier  partial  repudiation  had  prepared  the  way  for 
these  more  radical  measures,  and  the  plea  of  expediency 
again  sufficed.  Mr.  Memminger  admitted182  the  violations 
of  the  note  contract  in  the  right  to  receive  a  sum  of  money 
two  years  after  peace  and  the  right  to  use  them  for  gov- 
ernment dues.  He  offered  no  defense  of  the  second  in- 
fringement, which  the  sovereign  power  of  the  nation  alone 
was  left  to  justify.  But  in  the  first  alteration  the  Treasury 
was  argued  to  have  maintained  its  good  faith  by  offering 
the  bonds  during  ninety  days  for  the  notes,  and  in  lieu  of 
the  specie  promised  this  was  the  best  security  to  be  given 
for  the  present,  unless  the  actual  payment  was  postponed 
until  better  times.  Such  an  enactment  was  urged  to  be  in 
compliance  with  the  spirit  of  the  law,  if  not  the  letter,  and 
the  only  measure  that  would  save  the  value  of  the  notes 
issued  and  likewise  prevent  the  ruin  of  public  and  private 
credit. 

The  admininstration,  to  exonerate  itself  further,  made 
an  ungrateful  denial  of  the  resource  which  had  served  so 
faithfully,  even  if  to  its  destruction.  It  declared  that  the 
legislation  now  against  the  notes  would  be  no  interference 
with  the  rights  of  the  people,  as  between  each  other,  since 
there  had  been  no  express  contract  to  make  them  currency, 
and  Congress  had  always  refused  to  pass  a  legal  tender 
act  for  them.  The  conclusion  of  the  whole  matter  was  that 
no  contract,  however  solemn,  could  require  national  ruin. 

M  Caper's  Memminger,  p .  469-470.     Report  to  Congress. 


8o 

The  sanguine  Secretary  believed  that  the  compulsory  fea- 
ture would  be  less  objectionable  because  the  inducements 
of  the  bonds  would  bring  in  a  vast  part  of  the  currency 
voluntarily. 

The  President  seconded  unqualifiedly  in  his  message  of 
December  7,  1863,  the  heroic  policy  outlined.  He  said183 
that  taxation  was  too  slow  for  exigencies,  and  the  amount 
of  notes  was  so  swollen  that  to  remove  the  cause  of  it  no 
measures  could  be  too  stringent.  He  asked  Congress  to 
give  its  earliest  and  entire  attention  to  the  currency.  The 
chairman  of  the  Finance  Committee,  Mr.  Hunter,  was 
ready  for  a  revolution  in  finances.  He  contended184  that 
precedents  were  against  paying  debts  in  full.  The  United 
States  had  not  done  it.  The  Confederate  notes  had  been 
greatly  superior  to  the  Continental  issues,  which  were  not 
fundable.  This  had  been  a  good  feature,  while  currency 
was  not  in  excess,  but  now  it  had  become  utterly  destruc- 
tive of  public  credit.  Mr.  Hunter  thought  the  govern- 
ment should  confess  like  a  merchant  who  is  involved  and 
start  again.  But  such  absolute  repudiation  was  very  little 
approved. 

ClyASH   OF  VlEWS  AND   INTERESTS. 

The  plans  of  the  Treasury  were  subjected  to  sharp  criti- 
cism in  Congress  by  the  advocates  of  contending  policies. 
The  funding  was  objected  to  as  the  chief  remedy  of  the 
currency  rather  than  taxation.  Such  a  policy  was  thought 
to  place  too  high  a  value  on  the  notes,  in  addition  to  the 
ruinous  practice  of  exchanging  non-interest  bearing  notes 
for  high  rate  government  securites.  Under  the  direction185 
of  Senator  Brown,  of  Mississippi,  the  proposition  to  tax 
the  notes  25  or  33  1-3  per  cent.,  received  increasing  favor. 
The  right  to  tax  notes  was  held  to  be  the  same  as  that 

"'Richmond  Enqurier,  Dec.  8,  1863;  Records  of  War  of  the  Re- 
bellion, Series  IV,  Vol.  II,  pp.  1035-1040. 

184  Richmond  Sentinel,  Dec.  4,  1863. 

185  Richmond  Sentinel,  Dec.  24,  1863. 


8i 

over  any  other  property.  President  Davis  had  hinted  in 
this  direction,  saying  if  each  person  held  notes  according 
to  his  ability,  it  would  be  the  best  form  of  taxation.  The 
supporters  of  a  legal  tender  measure  renewed  their  efforts. 
A  bill  of  Senator  Phelan  to  make  the  interest  coupons 
of  the  new  bonds  legal  tender  received  an  unfavorable  re- 
port and  was  tabled  February  3,  1864.  Gen.  Duff  Green, 
who  had  been  connected  with  various  financial  projects, 
memorialized  Congress  January  6,  1864,  against  converting 
the  mass  of  depreciated  notes  into  a  funded  debt.  He 
wanted  a  direct  tax  on  notes  and  the  use  of  bonds  for 
expenses. 

The  double  remedy  for  the  currency  of  funding  under  a 
penalty  and  of  heavy  taxation  of  notes  brought  a  clash 
of  the  branches  of  Congress  and  led186  to  confusion  and 
delay.  There  was  a  divergence  of  opinion  as  to  the  pro- 
portion of  notes  to  be  given  for  bonds  and  for  the  new 
currency.  The  House  voted  to  tax  the  notes,  while  the 
Senate  rejected  the  proposition;  yet  after  conference  a 
measure  was  enacted  that  combined  many  of  the  features 
of  the  administration  plan  with  radical  Congressional 
amendments.  The  objection  to  treating  the  whole  sum  of 
notes  to  the  same  process  and  the  fear  that  special  bonds 
with  coupons  receivable  for  taxes  would  be  used  as  cur- 
rency shaped  the  legislation. 

THE;  RUINOUS  CULMINATING  ACT. 

The  Act  of  February  17,  1864,  was  the  culmination  of 
the  currency  laws  of  the  Confederacy.  It  was  heralded 
as  "marking  an  epoch  in  the  monetary  department  of 
modern  polity."  But  the  discrediting  of  the  public  obliga- 
tions by  this  act  so  paralyzed  the  national  finances  that 
no  more  serious  repudiation  needed  to  be  projected  for 
enactment  in  the  succeeding  final  year.  It  was  a  combina- 
tion of  funding  currency  and  taxation.  As  complex  as  had 

"'Savannah  Republican,  Feb.  4,  1864;  Richmond  Examiner,  Feb. 
6,  1864. 


82 

been  the  Act  of  March  23,  1863,  in  dividing  the  notes  into 
three  classes  with  reference  to  the  date  of  issue  and  pre- 
scribing different  times  and  rates  of  funding,  the  new  act187 
divided  the  notes  on  the  basis  of  denominations  and  de- 
monetized portions  by  application  of  progressive  taxation. 

The  compulsory  funding  was  required  in  four  per  cent, 
certified  stock  of  twenty  years.  All  notes  above  five  dol- 
lars were  allowed  this  form  of  exchange  until  April  1st, 
east  of  the  Mississippi,  and  July  1st  west  of  the  Mississippi. 
After  those  dates  the  one  hundred  dollar  notes  were  taxed 
at  33  J-3%  and  10%  added  monthly.  Notes  other  than 
one  hundred  were  also  taxed  33  1-3%,  but  could  be  ex- 
changed from  April  ist  to  January  I,  1865,  for  four  per 
cent,  bonds,  with  the  proportionate  deduction.  They  also 
could  be  traded  for  a  new  issue  of  notes  at  the  rate  of  two 
for  three,  but  on  January  I,  1865,  a  tax  of  100%  was  to  be 
levied  on  all  the  old  issue,  wiping  it  out  of  existence.  The 
five  dollar  notes  had  a  longer  duration  of  grace,  their 
funding  period  running  to  July  1st  east  of  the  Mississippi, 
and  October  ist  west  of  the  Mississippi;  then  a  tax  of 
33  l~3%  was  applied.  The  seven-thirty  interest  notes  which 
had  been  practicably  counted  as  funded,  were  forthwith 
converted  into  six  per  cent,  bonds.  Call  certificates  for 
notes  issued  since  September,  1863,  must  be  put  into  four 
per  cent,  bonds  or  lose  one-third  by  taxation. 

The  four  per  cent,  certified  stock  in  which  the  old  notes 
were  funded  was  to  be  accepted  in  payment  of  taxes.  An 
exception  was  made  of  States  which  held  notes  in  their 
treasuries,  the  limitation  of  funding  being  placed  at  Janu- 
ary i,  1865,  and  six  per  cent,  bonds  given.  Since  future 
issues  were  to  be  checked  the  two  sources  of  supplies  now 
provided  were  certificates  of  indebtedness,  bearing  six  per 
cent,  and  transferable,  and  non-taxable  ^onds  to  the  au- 
thorized amount  of  $500,000,000.  In  view  of  the  tax  levied 
on  all  government  securities  by  the  Act  of  February  i7th, 

187 Acts  of  Congress,  Statute  IV,  Ch.  LXIII. 


83 

the  immunity  of  this  obligation  was  expected  to  enhance 
greatly  its  value  and  the  demand  for  it.  As  definite  se- 
curity for  the  payment  of  the  six  per  cent,  interest  a  pledge 
was  made  of  the  export  and  import  duties,  payable  in 
specie  or  coupons  of  the  bonds. 

APPLICATION  OF  THE  MEASURE. 

The  provisions  of  the  Act  modified  materially  the  pro- 
gram of  Mr.  Memminger.  All  the  notes  were  not  per- 
emptorily funded  at  an  early  date.  A  cheaper  security  was 
offered  for  the  funding  and  the  new  six  per  cent,  stock  was 
not  guaranteed  by  direct  taxation.  Taxes  were  to  be  paid 
not  in  the  interest  coupons  of  special  bond  issue,  but  in 
the  four  per  cent,  certificates,  which  were  both  non-taxable 
and  the  funded  representatives  of  the  redundant  currency 
being  retired.  But  the  Secretary  set  himself  faithfully  to 
the  administration  of  the  legislation;  112  new  depositaries 
were  appointed  for  one  year  to  aid  the  refunding.  Quar- 
termasters in  the  armies  were  selected  to  discharge  similar 
offices.  The  old  notes  were  to  be  cancelled  by  being  cut 
and  hammered  at  these  agencies. 

Barely  forty  days  existed  for  the  operations,  and  in  that 
period  it  was  impossible  to  prepare  the  stock  and  have  the 
new  notes  issued.  Congress  had  again  refused  the  request 
to  allow  the  engraving  of  signatures,  and  the  delay  of  hav- 
ing scores  of  ladies  serve  as  signers  of  the  currency  was 
not  remedied.  A  circular  appeal188  was  made  to  175  banks 
that  they  accept  certificates  issued  by  the  depositaries  in 
lieu  of  bonds.  Their  help  was  further  invoked  for  the  ad- 
justment of  prices  and  business  operations  to  the  new  cur- 
rency. The  Secretary  thought  if  they  would  advertise  to 
accept  the  old  notes  and  give  credit  for  them  in  proportion 
of  $2  for  $3,  the  rating  would  be  established.  Bank  checks 
and  temporary  certificates  of  the  funding  were  to  tide  over 
until  the  new  notes  and  bonds  were  issued. 

"•Treasury  Letter  Book  "E,"  Mch.  15,  1864. 


84 

PANIC  AND  PRICKS. 

The  publication  of  the  Act  of  February  I7th  caused  a 
panic  in  commercial  circles.  Prices189  at  once  mounted 
higher.  Whisky  that  had  sold  for  $90  a  gallon  brought 
$120.  Various  dealers  would  do  no  business  unless  they 
were  paid  in  $5  notes,  and  an  increase  of  price  was  de- 
manded equal  to  the  tax  of  33  1-3%,  to  be  imposed  after 
April  1st. 

Mr.  Memminger  noted  the  unfavorable  effect  on  prices 
of  the  tax  on  the  notes  for  which  the  seller  of  commodities 
was  bound  to  indemnify  himself  in  advance.  He  said190 
that  his  plan  of  cutting  off  all  the  notes  at  one  time  would 
have  made  holders  of  goods  anxious  to  get  the  notes  at 
their  highest  rates,  and  prices  had  fallen.  Now  Congress 
by  depreciating  the  currency  had  brought  the  opposite 
result.  Gold  quotations  rose  from  21  to  I  in  February  to 
25  to  i  in  March.  Many  having  requisitions  refused  to 
present  them,  awaiting  the  new  issue  after  April  1st. 

BROWN'S  DENUNCIATION. 

The  legislation  was  received  loyally  at  first  by  those191 
who  expected  a  reduction  in  the  circulation  of  from  $300,- 
000,000  to  $500,000,000,  yet  violent  criticism  was  not  en- 
tirely withheld.  Gov.  Brown,  of  Georgia,  led  in  denuncia- 
tion in  his  message  of  March  10,  1864.  He  said,  "The 
act  has  shaken  confidence  in  the  justice  and  competence  of 
Congress.  The  country  was  prepared  to  pay  cheerfully  a 
heavy  tax,  but  it  did  not  expect  repudiation  and  bad  faith." 
Georgia  was  obliged  to  use  Confederate  currency,  and  the 
tax  of  the  notes  would  be  a  direct  levy  on  the  State  by  the 
national  government,  which  must  not  be  allowed.  He  ad- 
vised to  accept  only  the  notes  at  par  and  then  issue  a  State 
currency  to  be  exchanged  for  the  new  notes. 

"'Richmond  Enquirer,  Feb.  24. 

1K  Letter  to  J.  K.  Sass,  of  Charleston,  S.  C.,  Feb.  26. 

m  Augusta  Chronicle,  Feb.  22,  1864;   Montgomery  Advertiser,  Apr. 

21,    1864. 


PROGRESS  OF  FUNDING. 

In  the  brief  period  allotted  the  operations  of  the  funding 
of  the  notes  made  a  large  showing.  A  statement192  of  the 
Register  of  the  Treasury  on  April  30,  1864,  gave  a  com- 
prehensive view  of  the  currency  issues  from  the  origin  of 
the  Department  which  were  affected  by  the  Act  of  Febru- 
ary 17,  1864. 

REDUNDANCY  THEORETICALLY  RELIEVED. 

The  Treasury  report193  for  the  period  up  to  the  time  the 
taxation  on  the  notes  began  estimated  that  $250,000,000 
had  come  in  for  cancellation,  east  of  the  Mississippi.  The 
depositaries  observed  that  only  about  one-half  of  this 
amount  was  in  one  hundred  dollar  bills.  The  redundancy 
was  figured  out  by  the  Secretary  to  have  been  relieved 
in  the  following  manner:  $800,000,000  was  the  amount  of 
the  general  currency  on  April  1st.  Fifty  millions  being 
to  the  credit  of  disbursing  officers,  seven  hundred  and 
fifty  millions  were  in  actual  circulation.  Fifty  millions 
were  presumed  to  be  funded  west  of  the  Mississippi,  and 


192 

Issued. 

Redeemed. 

Outstand- 
ing. 

Act  of  Mch.  9,  1861,  Int.-bearing  notes  ($3.65),  . 
'    May  15,  1861,  Two  years  after  date,  .   .   . 
'      Aiicf.  IQ   iRfir   General  enrrenrv    

$2,021,101 

17,347,955 
291,961,830 
122,640,000 
5,600,000 
138,056,000 
2,344,800 
514,032,000 
3,023,000 
915,758 

$1,495,150 
9,172,580 
141,034,709 
22,658,100 
1,102,382 

26,159,960 

44,737,957 

$525,950 
8,175,375 
150,927,121 
99,981,900 
4,497,618 

114,240,839 
473,233,322 

Apr.  17,  1862,  Int.-bearing  notes  ($7.30),  . 
Apr.  17,  1862,  Denominations  of  $ii,$2,  . 
Oct.    13,  1862,  General  currency,     .... 
Oct.    13,  1862,  Denominations  of  $11,  $2,  . 
Mch.  23,  1863,  General  currency  
Mch.  23,  1  863,  Ones  and  Twos  
Mch  23  1863  Fifty  cents 

1,097,942,963 

246,360,838 

851,582,125 

In  this  table  the  redemptions  were  for  worn  currency  and  earlier  cancellations, 
the  notes  on  hand  of  the  last  funding  not  counted. 

Of  the  $973,281,863  non-interest  notes,  the  One  Hundred  denomi- 
nations aggregated  $318,038,200;  the  remainder  was:  Fifties,  $188,- 
861,400;  Twenties,  $217,425,020;  Tens,  $157,982,750;  Fives,  $79,- 
090,315- 

1MTo  Congress  May  2,  1864;  Caper's  Memminger,  pp.  480-1. 


OF  THE 


86 

thus  with  the  deduction  for  notes  to  be  cancelled,  there 
remained  in  circulation  four  hundred  and  fifty  millions. 
One  hundred  and  twenty-eight  millions  of  the  one  hundred 
dollar  notes  were  assumed  to  be  unfunded  and  no  longer 
a  medium.  Finally  the  residue  of  three  hundred  and  twen- 
ty-two millions  was  brought  to  a  minimum  of  two  hundred 
and  fourteen  million  dollars  by  the  tax  of  one-third.  Pro- 
vided this  vast  contraction  did  not  shatter  all  business  ex- 
change, and  granted  that  market  values  had  been  fairly  and 
effectively  touched,  then  this  splendid  result  on  paper  of 
the  currency  legislation  ought  to  have  restored  prices  to 
a  healthy  condition. 


CHAPTER  V.— COLLAPSE. 

The  Second  Congress  of  the  Confederate  States  con- 
vened May  2,  1864,  under  conditions  temporarily  more193 
hopeful.  The  winter  had  not  been  unfavorable  to  the 
Southern  arms  and  the  collection  of  supplies  was  im- 
proved. The  currency  measures  were  presumed  to  have 
furnished  the  needed  remedy  and  President  Davis194  said 
the  effect  would  be  the  reduction  of  the  circulation  to 
$230,000,000  by  July  first.  After  the  first  rise  in  specie 
quotations  of  paper  to  23  for  I  in  March,  there  had  been  a 
fall  to  20  in  April,  and  18  in  May. 

The  government195  expenses  for  the  two  preceding 
quarters  were  proportionately  decreased,  though  partly  be- 
cause of  requisitions  held  back  for  the  new  note  issue.  The 
army  and  navy  had  cost  $249,426,097  in  the  inflated  cur- 
rency, but  the  public  debt  under  the  provisions  for  interest 
and  redemption  of  notes  had  required  one-third  of  the  to- 
tal outlay  of  $383,110,559.  The  past  estimates  were  now 
.seen  to  be  much  too  great,  for  the  balance  on  April  1st  of 
$608,000,000  of  undrawn  appropriations  was  sufficient  to 
meet  the  demands  of  the  succeeding  nine  months  in  1864, 
allowing  a  rate  of  expenditure  based  on  fifty-four  millions 
monthly.  The  reported  receipts  of  $690,000,000  since  Oct. 
I,  1863,  established  apparently  a  large  surplus,  but  a  con- 
siderable source  of  this  income  had  been  $250,000,000  of 
four  per  cent,  stock  and  $39,000,000  of  call  certificates,  real- 
ized by  the  compulsory  funding. 

The  tax  of  1863  was  credited  with  $59,400,000,  but  the 

198  Pollard's  Fourth  Year,  p.  14. 


94 Message  of  May  2,  1864. 
1MCapers's  Memminger,  pp.  477,  8. 


actual  resource  meeting  the  half  year's  accounts  had  been 
the  unfailing  Treasury  note. 

A  LAST  ATTEMPT  TO  LIMIT  NOTE  ISSUES. 

The  problem  of  the  new  Congress  was  to  satisfy  the 
claims  on  the  Treasury  without  a  speedy  recurrence  of  the 
condition  of  over-issue  from  which  legislation  had  so  lately 
set  it  free.  The  note  issues  were  in  theory  limited  to  $200,- 
000,000,  notwithstanding  the  statute  allowed  three  dollars 
of  the  old  tenor  to  be  exchanged  for  two  of  the  new,  a  pro- 
viso estimated  to  require  $214,000,000.  Hence  there  was 
a  perilous  probability  of  an  output  that  would  thwart  the 
projected  improvement  of  inflated  prices.  As  a  relief  from 
this  danger,  the  Administration196  offered  the  familiar  rem- 
edies of  the  past.  The  public  might  be  diverted  from  ex- 
changing its  old  currency  for  the  new  by  remitting  taxa- 
tion on  the  four  per  cent  stock  into  which  the  notes  had 
also  the  option  of  being  funded.  Requisitions  on  the 
Treasury  could  be  met  by  certificates  of  indebtedness, 
taxes  and  the  sales  of  the  new  half-billion  non-taxable 
bonds. 

The  experience  of  earlier  efforts  did  not  promise  much 
for  the  success  of  this  latest  government  security.  Its  cou- 
pons, payable  for  export  duties  would  have  little  demand 
under  the  effective  blockade.  The  immunity  from  taxa- 
tion was  a  small  inducement  in  contrast  with  the  exag- 
gerated values  of  the  period.  The197  advertisements  stated 
that  $5,000,000  was  to  be  offered  at  public  outcry  in  Rich- 
mond, May  12,  but  the  business  men  had  then  been  called 
to  the  field  so  largely  to  repel  Grant's  attacks  that  the  day 
of  sale  was  postponed  to  June  8th.  The  Secretary  was  de- 
sirous of  securing  50%  premium  in  paper  money  on  the 
first  bids,  and,  the  same  conditions  prevailing  upon  the 

106Capers's  Memminger,  pp.  481-484. 

197  April  19,  1864,  in  leading  Southern  newspapers. 


89 

second  offering  at  the  capital,  the  place  of  sale  was  changed 
to  Columbia,  S.  C. 

There  the  price  was  established  at  135  in  Confederate 
paper  on  June  21  st,  and  forty-eight  special  agents  were  ap- 
pointed to  handle  the  bonds.  Several  million  dollars  worth 
were  sent  abroad  and  the  agent,  Gen.  C.  J.  McRae,198  was 
told  to  take  six  cents  in  specie  on  the  dollar  for  them.  This 
foreign  offering  came  to  nothing,  as  General  McRae199  re- 
ported that  five  cents  was  the  top  of  the  market,  since  the 
speculators  in  the  South  had  sent  over  their  holdings  at 
that  quotation. 

USE  OF  CERTIFICATES  OF  INDEBTEDNESS. 

By  September  3Oth.  the  sales  of  the  Treasury  had200 
amounted  to  $14,481,650,  and  on  February  I,  1865,  Con- 
gress was201  informed  that  $44,517,500  had  been  taken  at 
par,  with  a  premium  of  $14,660,000.  $30,000,000  of  the 
bonds  were  used  in  discharge  of  public  indebtedness,  but 
there  was  no  additional  demand  for  them.  The  plan  to  use 
the  certificates  of  indebtedness  met  with  even  less  success 
than  the  earlier  effort  to  exchange  bonds  for  subsistence. 
Every  inducement  was  furnished  to  urge  these  credit  de- 
vices, yet  the  holders  of  supplies  would  not  take  the  certi- 
ficates, nor  did  the202  army  quartermasters  co-operate  in 
disposing  of  them,  so  that  by  September  3Oth,  only  $1,740,- 
ooo  had  been  placed. 

Under  such  conditions  the  pressure  for  the  issue  of  notes 
proved  irresistible  by  an  Administration  committed  for 
three  years  to  that  financial  policy.  Yet  it  was  com- 
monly203 thought  that  "the  paper  money  machine"  had 

198July  17,  1864,  Letter  Book  "E." 
199 To  Secretary  Trenholm,  Nov.  4,  1864. 
200  Report  of  Nov.  7,  1864,  Treasury  MSS. 
m Letter  of  Trenholm,  Book  "F." 

102  To  Seddon,  Secy,  of  War,  Apr.  25,  1864. 

103  Richmond  Enquirer,  Mch.  12,  1864. 


90 

been  stopped,  as  though  a  legislative  act  of  this  date  were 
adequate  to  prevent  further  perils  from  the  currency,  what- 
ever should  be  the  demands  for  expenditures. 

The  Treasury  Note  Bureau  was  slow  in  preparing  the 
issues  for  which  heavy  demands  were  made  after  April  1st. 
The  army  had  drawn  previously  $72,609  per  diem,  when 
expenses  were  $600,000.  Holders  of  old  notes  succeeded 
in  making  an  exchange  only  after  long  delay.  There  arose 
much  irritation  and  the  Department  was  charged  with 
holding  back  the  new  notes.  Mr.  Memminger  incurred  the 
blame  of  this  and  had  to204  explain  the  expediency  of  his 
instructions  to  Congress. 

Accordingly,  the  note  circulation  started  again  surely  on 
a  course  of  redundancy.  On  May  3ist,  $57,000,000  had 
been  paid  out,  while  $200,000,000  were  reported  as  need- 
ed. The  value  of  the  notes  was  lessened  by  the  fact  that 
taxes  were  being  paid  in  the  four  per  cent,  certificates,  and 
thus  the  paper  money  affected  by  the  repudiation  of  Feb- 
ruary 1  7th  could  yet  be  made  available.  The  largest  pro- 
ducers, the  farmers,  were  independent  of  money  claims 
by  reason  of  the  tithe,  so  that  the  additional  currency 
served  as  in  the  past  to  foster  speculation,  and  the  public 
appraised  the  first  and  the  second  tenor  with  little  dif- 
ference. 

CONGRESS  REPUDIATES  SECRETARY  MEMMINGER. 

The  second  Congress  was  early205  disposed  to  adjourn 
and  made  a  record  of  irresolution  after  debate  surpassing 
that  of  the  First  Congress.  Many  currency  measures  were 
introduced  and  agreement  reached  on  none.  The  Senate 
voted  to  reduce  the  limit  of  note  issue  to  $100,000,000,  in 
which  the  House  would  not  concur.  In  an  effort  to  make 


204  Question  of  Congress,  May  20,  Book  "E." 

205  Richmond  Enquirer,  May  31,  1864. 


the  certificates  of  indebtedness  a  chief  resource,  the  Senate 
alone  adopted  the  provisions  of  ultimate  redemption  in 
specie  and  payment  of  interest  in  notes  at  a  coin  rating. 
This  was  on  the  recommendation206  of  Mr.  Memminger; 
but  the  House  declared  war  on  him  in  a  resolution  of  May 
26th  calling  for  his  resignation,  as  follows :  "In  a  Congress 
entrusted  with  the  control  of  the  currency  it  is  impossible 
to  perform  the  duty  effectually,  unless  the  office  of  Secre- 
tary is  filled  by  some  person  of  high,  unquestioned  ability 
as  a  financier,  whose  views  in  regard  to  important  matters 
of  finance,  especially  the  currency,  are  in  harmony  with 
those  of  Congress,  and  who  is  willing  to  carry  into  prompt 
and  efficient  operation  the  deliberate  enactments  of  Con- 
gress on  this  subject.  The  Secretary  is  thus  made  respon- 
sible to  Congress,  and,  without  touching  a  right  of  the 
President,  public  welfare  demands  the  retirement  of  Mr. 
Memminger,  not  questioning  his  honesty  and  patriotism, 
to  be  succeeded  by  some  individual  of  proper  ability  as  a 
financier  and  more  likely  to  command  public  confidence." 
The  motion  to  table  these  resolutions  was  lost  by  a  vote 
of  37  to  45,  and  they  were  referred  to  the  Committee  on 
Judiciary.  The  report  was  not  made,  because  it  was  an 
open  secret  that  the  Secretary  would  resign  at  the  close  of 
the  session. 

On  June  15th,  he207  asked  to  be  released  from  his  office 
because  there  had  come  an  essential  divergence  in  the 
plans  of  the  Department  and  those  adopted  by  Congress. 
He  said  his  action  had  been  delayed  by  his  sense  of  obliga- 
tion to  put  into  operation  immediately  upon  its  passage 
the  Act  of  February  17,  1864,  but  now  the  machinery  for 
the  plans  of  Congress  in  finance  and  taxes  was  so  adjusted, 
that  a  new  head  could  readily  assume  control. 

Congress  in  its  adjournment  on  June  I4th  had  refused 
to  allow  the  reforms  in  taxation  so  strongly  urged  and 

206  To  the  Senate,  May  20,  1864. 
207Capers's  Memminger,  p.  365. 


92 

thus  continued  a  policy  of  unfairness  and  discrimination. 
Its  attack  on  the  Treasury  Department  was  the  opening  of 
its  opposition  to  the  rest  of  the  Cabinet  and  reflected  that 
condition208,  in  some  quarters  prevalent,  of  a  lack  of  con- 
fidence in  the  President  and  his  advisers. 

TREASURY  SUPERVISION  OF  BLOCKADE  RUNNING. 

Additional  powers  were  conferred  upon  the  Treasury 
Department  in  1864  for  the  control  of  commerce.  The 
previous  blockade  running  had  been  by  private  companies, 
which  were  commonly  required  to  bring  one-third  of  the 
importations  in  government  supplies.  But  by  the  Act  of 
February  6,  1864,  the  character  of  the  trade  was  closely 
supervised  and  the  entrance  of  luxuries  was  debarred,  a 
wide  range  of  articles  being  designated.  A  maximum  of 
prices  was  assigned  to  manufactured  goods  of  cotton, 
wool,  flax  and  silk  received,  and  these  values  were  invoiced 
by  the  Treasury  in  coin  at  the  place  of  export.  The  fur- 
ther enactment,  that  one-half  of  the  cargo  in  and  out  must 
be  reserved  for  the  Government,  caused  conflict  with  sev- 
eral States  which  were  engaged  in  trade  on  their  individual 
account.  Against  many  remonstrances  the  Department 
held  firm,  and  the  Congress  of  the  Governors,  debating  the 
restriction,  at  Augusta,  Georgia,  was  told209  that  the 
united  interest  of  all  was  paramount  to  the  particular  con- 
cerns of  one  State.  Yet,  at  the  close  of  the  year,  the  con- 
cession was  made  to  the  States.  Cotton  was  the  valuable 
export  that  induced  various  English  companies  to  secure 
contracts  for  its  shipment. 

After  the  available  sterling  exchange  and  coin  had  been 
exhausted  by  Mr.  Memminger,  he  had  traded  cotton  to 
Europe  for  the  imperative  war  supplies.  The  Navy,  War 
and  Treasury  Departments  operated  at  cross  purposes  for 
a  time  in  foreign  financial  negotiations  until  by  an  agree- 

208  Pollard's  Fourth  Year  of  the  War,  pp.  75,  76. 

SMTo  Gov.  Bonham,  of  South  Carolina,  Oct.  28,  1864. 


93 

ment210,  the  Treasury  assumed  direction  of  handling  the 
cotton  and  ordered  vessels  to  be  purchased  exclusively  for 
the  purpose.  Four211  boats  were  at  once  secured  and  con- 
tracts let  for  ten  others,  of  which  only  a  few  got  to  sea 
before  the  surrender.  From  July  to  December,  i864212, 
I][>795  bales  of  cotton,  worth  $1,500,000  in  gold,  $45,000,- 
ooo  in  paper,  were  exported,  the  Produce  Loan  furnishing 
the  stock.  The  Department  did  not  ship  as  largely  as  it 
had  planned,  being  hampered  by  the  contracts  with  private 
companies.  The  trade213  of  blockade  runners  flourished, 
43  arrivals  being  entered  at  Wilmington  and  Charleston  in 
May  and  June,  and  43  again  in  November.  The  most 
pressing  army  supplies  were  thus  enabled  to  be  furnished. 

THE  TRANS-MISSISSIPPI  DEPARTMENT. 

The  cutting  in  twain  of  the  Confederacy  caused  a  separ- 
ate establishment  of  the  Treasury  in  Texas  and  there  the 
Trans-Mississippi  Department  was  created  by  Act  of  Con- 
gress in  March,  1864.  P.  W.  Gray  was  placed  in  charge  at 
Marshall  on  July  1st,  and  carried  on  the  independent  ad- 
ministrative duties  of  that  section.  Taxes  were  collected 
and  the  funding  conducted,  old  notes,  however,  being  com- 
monly stamped  and  reissued  in  place  of  the  new,  which 
could  not  be  secured  in  sufficient  quantities  from  the  East. 
The  impressment  of  supplies  was  conducted  by  Gen.  Kirby 
Smith  and  cotton  shipments  made  from  Matamoras.  The 
trade  from  the  Mexican  port  was  directed  by  the  Texas 
Cotton  Bureau,  which  was  active  to  the  last.  One  re- 
port214 from  this  self-sufficient  country  was  made  for  the 

210 March  29,  1864,  Book  "E." 

211Bulloch's  Secret  Service  of  C.  S.,  Vol  II,  p.  245. 

!12Trenholm  to  Senate,  Dec.  12. 

213  Cargoes  went  to  Nassau,  Bermuda  and  Havana  and  thence 
re-shipped.    Vessels  were  most  active  in  1863;    in  6  months  32,- 
075  bales  being  carried.     From  November,  1861,  to  March,  18164, 
84  steamers  were  engaged,  making  363  trips  to  Nassau  and  65  to 
other  ports.     Scharf's  C.  S.  Navy. 

214  Gray  to  Congress,  Feb.  20,  1865. 


94 

quarter  of  July  to  October,  and  showed  $95,000,000  re- 
ceipts against  $6,500,000  expenditures ;  $55,000,000  of  the 
old  currency  had  been  retired  and  $50,000,000  were  yet  to 
come  in. 

POLICY  OF  THE  NEW  SECRETARY. 

The  selection  of  the  successor  of  Mr.  Memminger  was  a 
guarantee  of  the  continuance  of  his  policy.  Mr.  G.  A. 
Trenholm,  of  Charleston,  assumed  the  Treasury  portfolio 
on  July  20,  1864.  He  had  been  a  trusted  counsellor  of  his 
fellow-townsman  in  preceding  years,  and  was  connected 
with  the  firm  of  John  Fraser.  &  Company,  which  had  been 
the  principal  agent  of  the  Department  in  South  Carolina, 
and  also  was  commercially  connected  with  Fraser,  Tren- 
holm &  Company,  of  Liverpool,  the  foreign  agents. 

Mr.  Trenholm  began  with  the  Department-honored  de- 
vice of  getting  deposits  of  four  per  cent,  call  certificates 
that  should  be  exchanged  for  $120,000,000  of  new  notes 
then  in  process  of  emission.  He  advertised  widely  and 
urged  persistently  the  sale  of  Government  securities.  A 
convention  of  the  Commissioners  of  Prices  of  the  States 
in  session  at  Montgomery,  Alabama,  September  2d,  was 
told  that  the  great  mass  of  citizens  of  every  class  must  buy 
bonds  and  nothing  else.  The  exhortation  of  the  Secretary 
was  to  stand  by  the  Treasury,  but  the  sentiment  of  the 
public  found  expression  in  the  statement  of  the  Richmond 
Enquirer215  that  no  one  expects  miracles  from  Mr.  Tren- 
holm. 

Under  appeals  for  home  purchasers,  $15,000,000  of  the 
non-taxable  stock  was  disposed  of  in  two  months,  and 
twice  the  amount  in  the  succeeding  three  months.  The 
certificates  of  indebtedness  were  also  used  to  the  sum  of 
$30,000,000  and  other  bonds  sold,  together  with  temporary 
loans  placed,  so  that  the  Secretary  stated216  he  had  realized 


215  Aug.  22,  1864. 

216  To  Secretary  Seddon,  Dec.  31. 


95 

$i97>ooo>oo°  from  these  various  sources.  This  showing  is 
rendered  improbable  by  a  report  of  the  Treasury  Note 
Bureau,  No.  10,  that  it  had  furnished  a  total  of  $120,000,- 
ooo  of  bonds  and  also  by  the  fact  that  the  issue  of  paper 
money  was  considerably  in  excess  of  the  amount  an- 
nounced as  paid  out.  However,  the  activity  of  the  Admin- 
istration was  neutralized  by  the  resumed  inflation  of  prices 
on  to  final  ruin  and*  by  the  variety  of  government  securi- 
ties which  speculators  hawked  about  at  complex  quota- 
tions of  depreciation. 

PROPOSED  MULTIPLE  STANDARD  OF  VALUE. 

The  official  policy  found  utterance  on  the  occasion  of* 
the  report217  to  Congress  for  the  half  year  ending  Septem- 
ber 30,  1864.  There  was  frank  confession  of  the  failure 
of  the  Currency  Act  of  February  7,  1864,  attested  by  the 
same  rating  for  old  and  new  issues,  and  a  present  re- 
dundancy, requiring  $25  for  $i  of  gold. 

The  Secretary  proposed  to  originate  a  multiple  standard 
of  value,  founded  on  the  agricultural  staples  of  cotton, 
corn  and  wheat.  This  would  bring  stability  into  the  finan- 
cial reckoning  hitherto  convulsed  by  the  variableness  of 
gold.  Heavy  taxation  was  the  foundation  of  the  plan  and 
the  redemption  of  notes  and  funded  debt  was  to  be  made 
from  the  tithes  of  the  three  staple  products,  at  prices  fixed 
by  legislative  act.  The  pledge  of  the  tax  in  kind  was  to 
extend  very  resolutely  into  the  years  after  peace  and  mean- 
while the  circulation  was  to  be  reduced  to  $150,000,000  by 
its  proceeds.  It  is  noteworthy  that  the  practicability  of  the 
scheme  depended  upon  the  adoption  of  the  same  recom- 
mendations which  Mr.  Memminger  had  made,  that  agricul- 
tural property  be  assessed  on  the  values  of  1860  and  that 
the  abatements  for  the  tax  in  kind  and  the.  property  tax  be 
not  allowed. 

'"Nov.  7,  1864. 


96 

The  funding  operations  and  the  public218  debt  during 
the  six  months  had  required  $342,000,000  of  the  $615,- 
000,000  expenditure  over  against  receipts  of  $415,000,000. 
Of  the  $65,000,000  of  the  currency  that  had  been  impaired 
by  the  Act  of  Congress,  there  was  yet  credited  to  the 
funded  debt  $325,000,000.  It  had  been  impossible  to  pre- 
vent the  continued  use  of  the  interest-bearing  notes  of 
1862,  nor  did  the  other  denominations,  excepting  the  One 
Hundred  Dollar,  cease  to  be  accepted  with  the  one-third 
discount  on  the  first  of  July  and  October.  Furthermore, 
by  executive  direction,  on  the  plea  of  the  discount  of  the 
impoverished  holders,  the  absolute  retirement  of  all  the 
old  currency  was  postponed219  from  January  to  July  1st, 
1865. 

The  money  machine  continued220  to  operate  and  it  was 
as  impossible  as  ever  to  keep  within  the  bounds  appointed. 
The  recurring  rising  tide  was  marked  by  the  successive221 
issues  of  $57,500,000,  May  31,  1864;  $120,000,000,  July  1st; 
$345^000,000,  November  loth,  and  $468,000,000,  January 
21,  1865-.  The  large  portion  of  the  notes  was  for  direct 
demands,  the  exchange  of  the  old  currency  for  the  new 
requiring  $121,000,000  the  first  six  months. 

FINAI,  FINANCIAL  DELIBERATIONS. 

In  the  second  and  final  session  of  the  Second  Congress, 
sundry  bills  incorporated  the  financial  plans  of  Mr.  Tren- 
holm,  and  President  Davis  encouraged222  the  Houses  with 
the  official  opinion  that  judicious  legislation  could  meet 

!18The  aggregate  at  this  time  was  placed  at  $1,126,000,000.  being 
only  $96,000,000  in  advance  of  the  statement  of  six  months 
earlier.  The  funded  proportion  was  $738,340,000. 

219  Act  of  Congress,  Dec.  29,  1864. 

20  The  Treasury  Note  Bureau  was  removed  to  Columbia,  April 
26,  1864.     The  Treasurer  was  at  first  ordered  to  accompany  it. 
Later,  July  2,  Mr.  Elmore  resigned  and  J.  N.  Hendren  succeeded,. 
October  i. 

21  Reports  of  Note  Bureau. 

222  Message  of  November  7,  1864. 


97 

all  exigencies  of  war  and  prevent  a  great  accumulation  of 
debt.  The  press223  demanded  a  trial  of  the  Treasury  pro- 
gram since  it  could  not  make  affairs  worse.  The  legisla- 
tors debated  as  lengthily  and  differed  as  widely  as  in  the 
three  winters  past,  various  groups  advocating  utter  re- 
pudiation, abolition  of  tithe,  of  impressment  and  quarter- 
masters, and  seizure  of  cotton  and  tobacco  to  pay  the  sol- 
diers. 

A  portion  of  the  session  was  devoted  to  assaults  upon 
the  President  and  the  Cabinet.  Commissions224  investi- 
gated the  Commissary  Department  to  discover  that  it  was 
entirely  without  supplies.  Arrears  of  pay  had  been  accu- 
mulating for  nine  months,  reaching  $180,000,000,  and  the 
Quartermaster  General  reported225  that  the  army  was  par- 
alyzed for  want  of  funds.  Desperate  conditions  did  not 
avert  the  habitual  remedy,  but  before  the  Senate  joined 
the  House  in  ordering  fresh  issues  of  paper  money,  the 
capture  of  the  Note  Bureau  at  Columbia  necessitated  an 
inexorable  cessation.  In  the  theorizing226  of  the  Secretary, 
taxation  was  now  the  sole  relief  and  the  dissolving  Con- 
gress was  asked  to  pass  a  levy  of  one  hundred  per  cent, 
additional  to  the  rate  of  1864.  After  a  protracted  dis- 
agreement of  the  Houses,  a  measure  was  passed  on  March 
nth,  which  contained  the  reforms  whose  advocacy  had 
partly  discredited  Mr.  Memminger.  The  tax  in  kind  and 
on  income  must  be  paid  in  addition  to  an  eight  per  cent, 
levy  on  property.  All  taxes  for  1865  were  doubled  save 
that  of  the  tithe  on  the  farmer. 

IMPRESSMENT  OF  COIN. 

But  the  practical  planning  of  Mr.  Trenholm  had  been 
directed  to  getting  possession  of  the  coin  remaining  in  the 

08  Richmond  Enquirer,  November  8. 

124  Pollard's  Fourth  Year,  pp.  184-5. 

225  A.  R.  Lawton  to  Trenholm,  January  2,  1865. 

228  To  R.  M.  T.  Hunter,  February  20,  1865. 


98 

banks  and  concealed.  Secret  trade  had  been  allowed227 
with  the  enemy  to  secure  gold  for  cotton,  and  even  the 
States  were  advised228  to  get  the  metal  within  their  borders 
in  order  to  liquidate  their  portions  of  the  national  indebt- 
edness under  conditions  of  vast  depreciation.  A  law  of 
dire  necessity  came  forth  in  the  Act  of  March  17,  1865, 
which  asked  for  a  loan  of  $3,000,000  in  coin,  and  if  not 
contributed,  a  tax  of  25  per  cent,  was  to  follow  before 
April  1st.  As  security  for  the  loan  50,000  bales  of  Gov- 
ernment cotton  were  hypothecated.  Virginia  furnished  the 
gold  and  the  money229  was  used  to  pay  the  troops  in  the 
rating  of  Treasury  notes  at  60  for  I. 

The  utter  collapse  of  the  Department  was  confessed  by 
the  call  for  donations  from  the  citizens  of  the  Confederacy. 
Joint  resolutions  came  from  Congress  and  the  Secretary 
gave  official  utterance,  March  20,  1865,  that  the  Treasury 
being  straitened,  it  is  deemed  not  incompatible  with  the 
public  dignity  to  accept  the  free-will  offerings  of  a  gener- 
ous people.  The  final  receipts  were  acknowledged  and  re- 
corded in  family  plate,  church  vessels,  jewels,  ornaments, 
rings  and  personal  effects. 

7  To  T.  D.  Wagner,  of  Charleston,  January  10,  1865.    Book  "F." 

28  To  Chairman  F.  S.  Lyon,  January  16. 

229  Secretary  Trenholm  encouraged  Judge  Gray,  of  the  Trans- 
Mississippi  Department,  by  his  advice  of  March  17,  to  continue 
financial  operations.  When  the  Government  moved  from  Rich- 
mond southward,  at  Danville,  Va.,  'the  gold  was  drawn  on  at 
the  rate  of  70  to  I  to  pay  the  army.  Mr.  Trenholm  being  left  ill 
at  Catawba,  S.  C,  the  last  executive  deed  of  Mr.  Davis  was  the 
appointment  of  J.  H.  Reagan,  P.  M.,  as  Acting  Treasurer.  The 
fund  in  coin  then  was  $228,022,  which  was  paid  over  to  the  sol- 
diers, the  navy  and  the  agents  at  Washington,  Ga.,  May  4. 
Southern  Historical  Society  Papers,  Vol.  IX,  pp.  542-558. 


99 


CHAPTER  VI.— COMPARATIVE  FINANCIERING. 

The  similarity  of  the  Revolutionary  and  the  Confederate 
financial  history  is  commonly  observed  in  the  vastness  of 
the  depreciation  of  the  paper  currencies.  The  causes  of 
this  condition  were  in  some  degree  the  same,  while  the 
state  of  the  circulating  medium  made  necessary  like 
methods  of  correction  and  the  adoption  of  analogous  sub- 
stitutes and  experiments.  There  was  the  cycle  of  early  re- 
sort to  paper  money,  regular  and  finally  rapid  additions 
to  the  issue,  limitation  of  prices,  assessment  of  taxes  in 
kind,  impressment  and  repudiation.  Yet  in  the  details  and 
the  results  of  the  operations,  the  experiences  of  the  two 
governments  are  by  no  means  parallel. 

The  emission  of  bills  of  credit  was  largely  under  differ- 
ent circumstances.  The  colonies  had  been  familiar  with 
the  use  of  paper  money  and,  though  the  practice  had  not 
been  engaged  in  with  unvarying  honesty,  the  demand  for 
a  continental  issue  was  general  and  was  urged230  on  Con- 
gress by  the  people.  In  the  Southern  Confederacy  many 
mediums  of  exchange  had  been  prevalent,  and  the  bills  of 
many  systems  of  banks  were  used.  Specie  payments  hav- 
ing been  suspended  early  in  1861,  the  plan  of  establishing 
a  Government  currency  was  the  conception  of  the  Treas- 
ury administration  for  the  express  purpose  of  replacing 
the  circulation  of  the  various  financial  institutions. 

THE:  Two  FLOODS  OF  PAPER  MONEY. 

The  first  issue  of  $2,000,000  on  June  22,  1775,  was  ex- 
pected to  be  sufficient;  at  least,  the  subsequent  amounts 
would  be  small  and  rigorously  limited.  Protestations  pre- 
faced each  grant  as  the  sum  of  notes  at  more  frequent 
intervals  grew  larger.  The  first  Confederate  issue  of  $i,- 

280  Belles'  Financial  History,  Vol.  I,  p.  37. 


100 


000,000  on  March  9,  1861,  was  appointed  to  furnish  im- 
mediate funds,  but  the  decision  of  May  i6th  to  emit  $20,- 
000,000  in  notes  indicated  a  purpose  to  employ  this  form 
of  credit  extensively.  The  initial  calculation  was  to  dis- 
place half  the  circulation  of  the  banks,  then  the  whole 
amount,  and  next  to  have  a  moderate  increase  over  what 
the  country  had  actually  required  in  business.  Legislative 
bounds  were  touched  and  lifted  again  until  the  national 
money  making  was  entrusted231  to  the  discretion  of  the 
Secretary. 

The  record232  of  the  Continental  currency  inundation 
was  $6,000,000  in  1775,  $19,000,000  in  1776,  $13,000,000  in 
1777,  $63,000,000  in  1778,  $140,000,000  in  1779,  total  $242,- 
000,000.  In  the  South  the  figures  approximately  were 
$96,000,000  in  1861,  $329,000,000  in  1862,  $525,000,000  in 
1863,  $600,000,000  in  1864,  total  $1,550,000,000.  Five- 
sixths  of  the  Revolutionary  issue  came  in  the  fourth  and 
fifth  years  of  the  war ;  three-fifths  of  the  Confederate  issue 
was  uttered  in  the  first  three  years.  At  the  end  of  the 
periods  named  the  two  governments  had  practically  ceased 
to  print  their  bills,  since  they  were  worth  little  better  than 
nothing,  the  quotations  of  each  currency  being  quite  simi- 
lar, between  40  and  60  to  i  of  specie. 

REPUDIATION,  PARTIAL  AND  COMPLETE. 

However,  the  more  accurate  dates  of  comparison  are 
those  of  the  legislative  acts  of  March  18,  1780  and  Febru- 
ary 17,  1864.  The  Continental  Congress  was  guilty  of 
direct  repudiation,  though  it  had  expressly  denied233  that 
it  would  proceed  in  "wanton  violation"  of  the  pledges  of 
the  United  States.  It  ordered  the  old  tenor  to  be  ex- 
changed for  new  at  the  valuation  of  40  to  I,  and  the  second 
issue  was  to  be  limited  to  $10,000,000.  The  enactment  of 

231  Ante,  Chapter  II,  sub-head,  "Final  reliance  on  paper." 

232  Phillips'  Continental  Money,  p.  198. 

233  Address  of  Sept.  13,  1779. 


101 


the  Southern  Congress  was  not  a  complete  repudiation. 
For  six  weeks  the  currency  could  be  transformed  into  in- 
terest-bearing stocks,  and  then  only  one-third  of  the  notes 
was  progressively  taxed  out  of  existence,  while  the  larger 
portion  was  to  be  rated  at  three  to  two  of  the  new  issue 
for  a  period  of  nine  months. 

The  relative  stages  of  the  results  of  the  two  statutes 
were  dissimilar.  The  second  Continental  tenor  ran  a  head- 
long course,  passing  at  once,  2  for  i  of  hard  money ;  then  in 
1781  at  4  for  I,  and  next  vanishing.  Pennsylvania234  State 
money  had  been  quoted  at  3  to  I  of  specie,  arid  when  the 
Continental  was  commercially  published  at  175  to  I  of 
specie,  the  public  in  its  calculation  substituted  the  State 
notes  as  the  measure  and  killed  the  emission  of  Congress 
by  a  listing  of  525  to  i.  The  guarantee  of  this  last  money 
had  been,  as  of  the  early  notes,  the  illusory  pledge  of  the 
faith  of  the  United  States,  not  yet  confederated,  and  the 
statutory  valuation  was  notoriously  out  of  accord  with  the 
market235  acceptance  of  the  old  tenor,  60  and  more  to  i. 

The  Confederate  Congress  attempted  no  valuation  of  its 
past  issues  other  than  three  dollars  of  the  old  tenor  for 
two  of  the  new,  but  since  denominations  of  five  dollars 
were  not  taxed  at  once  after  April  ist,  1864,  depreciation 
increased  for  a  month,  then  was  followed  by  a  period  of 
slightly  improved  quotations.  March  conditions  of  the 
currency  were  not  reproduced  until  October,  although  the 
proportion  of  exchange  for  gold  was  so  exaggerated  that 
the  relief  was  practically  trifling  in  degree.  The  scales  of 
the  lessening  worth  of  the  paper  mediums  of  the  two  wars 
have  marked  resemblance. 

A  COMMON  WORTHLESSNESS. 

In  Revolutionary  times,  within  two  years  of  the  first 
issue,  the  quotation  was  2  of  paper  for  i  of  specie ;  by  the 

^Sumner's  Financier  of  the  Revolution,  p.  95. 
288  Belles'  Financial  History,  Vol.  I,  p.  94. 


102 


close  of  1777,  4  to  I,  and  in  1778,  a  variation  between  4 
to  I  and  6  to  I.  The  year  preceding  repudiation,  the  re- 
dundancy was  measured  by  $41  of  paper  in  December 
required  to  purchase  what  $8  had  secured  in  January. 

Likewise  the  depreciation  of  Confederate  currency  from 
a  discount  of  20  to  300  per  cent,  during  1862  passed  to  the 
ruinous  fall  in  the  third  year  of  19  of  paper  for  I  of  gold. 
After  the  temporary  checking  of  1864,  the  stress  of  need 
and  disaster  restored  the  retrograde  tendency  and  the 
drop  from  20  to  40  for  I  was  the  record  of  a  few  months. 
So  then  the  quotation  of  60  to  I  in  March,  1865,  on  the  eve 
of  dissolution  was  no  less  than  the  market  estimate  of  the 
notes,  which  the  First  American  Congress  voted  to  ex- 
change. Public  opinion  of  these  contrasted  periods  would 
have  shaken  off  the  inexorable  standard  of  hard  money, 
The  Penn  Packet  of  February  16,  1779,  proclaimed  that 
land,  not  gold  nor  silver,  subject  to  monopoly,  was  the 
true  measure  of  value.  The  Richmond  Sentinel  of  August 
23,  1863,  argued  that  gold  was  not  a  standard  for  the  South 
and  suggestions  from  many  sources  were  persistent  that 
cotton  or  land  should  be  substituted.  Each  government 
had  its  currency  counterfeited  by  the  enemy.  No  estimate 
can  be  given  of  English  importations.  Upham235b,  of  Phila- 
delphia, placed  the  value  of  his  Confederate  fac-similes  at 
$15,000,000,  alleging  that  they  were  issued  to  satisfy  curi- 
osity, not  as  forgeries.  But  New  York  firms  took  his 
designs  and  Jew  brokers  carried  the  issue  South. 

Inefficient  taxation  was  a  common  fatal  fault  of  these 
two  governments  and  the  legitimate  cause  of  the  currency 
disasters.  The  united  colonies  could  not  demand  of  them- 
selves that  which  they  had  denied  England.  The  repre- 
sentatives of  the  Southern  States  would  not  lay  on  the 
people  burdens  in  the  season  when  they  had  proven  the 
lightest. 

235b  Lee's  The  Currency  of  the  C.  S.  A.,  p.  24. 


io3 

THE  SLIGHT  AID  OF  TAXATION. 

General  advice  and  then  earnest  recommendation  to  the 
States  in  1777  to  apportion  $5,000,000  in  taxes  were  the 
strongest  measures  open  to  the  Continental  Congress. 
The  belated  collections  of  the  tardy  levy  yielded  by  Sep- 
tember, 1779,  $3,000,000,  a  sum  equal  to  one-sixtieth  of  the 
note  issues.  The  fiscal  policy  of  Robert  Morris  was  based 
on  taxation,  yet  with  all  his  insistence  and  the  modest 
requisitions  of  Congress,  the  returns  in  three  years,  to 
November  I,  1784  ,were  $2,000,000  in  actual  value.  There 
was  no  executive  power  to  compel  the  payment  of  taxes  in 
the  nascent  American  nation. 

On  the  other  hand,  the  ample  authority  of  the  Confeder- 
ate States  was  not  used  with  a  largeness  and  a  promptness 
demanded  by  its  needs.  After  a  tax  levy  within  six  months 
of  the  organization  of  the  government,  a  year  elapsed 
before  the  Treasury  had  received236  slightly  more  than  half 
the  assessment.  It  was  eighteen  months  after  these  re- 
ceipts before  the  returns  of  the  second  and  heavier  tax 
were  appreciable.  The  presumed  vigorous  system  of  tax- 
ation with  its  countervailing  rebates  was  applied  in  the 
last  year  of  inflated  values,  when  total  avails  of  $101,- 
000,000  are  correctly  estimated  upon  being  divided  by  20 
or  30. 

In  the  face  of  the  final  paper  money  issues  and  because 
of  an  unresponsive  public,  the  Revolutionary  Congress  of 
December  14,  1779,  called  for  specific  supplies  and  appor- 
tioned to  the  States  amounts  of  flour,  corn,  oats  and  to- 
bacco. Much  produce  was  secured,  notably  in  Virginia, 
but  the  device237  lacked  administrative  direction,  so  that 
supplies  rotted  and  were  not  transported  because  of  ex- 
pense. The  tax  in  kind  of  the  Confederacy  was  introduced 
to  enable  the  farmer  to  pay  most  easily  his  share  of  taxa- 

286 Ante,  Chapter  II,  sub-head,  "Delays  in  Collection." 
MTSumner's  Financier  of  the  Revolution,  I,  p.  154. 


IO4 

tion.  Large  collections  of  the  products  were  wasted,  their 
control  was  not  well  centralized  and  by  reason  of  the  im- 
paired transportation  the  tithe  afforded  a  national  service 
relatively  small  to  the  burden  on  the  people. 

COMPULSORY  CONTRIBUTIONS. 

Again,  impressment  of  supplies  for  the  army  was  com- 
mon throughout  the  war  with  England,  beginning  in  New 
England  in  1775 ;  frequent  in  Pennsylvania  in  1778,  and 
severe  in  Virginia  in  1781.  The  vexations  common  to  it 
in  that  period  were  reproduced  in  the  South,  where  im- 
pressment began  in  1862.  The  schedule  of  prices  ap- 
pointed by  the  commissioners  of  the  various  States  for 
seized  products  did  not  remove  objections,  and  at  last  cer- 
tificates of  indebtedness  were  forced  on  the  public  in  some 
sections  for  their  supplies.  Often  the  payments  allowed 
were  notoriously  less  than  the  market  quotations,  thus 
arousing  the  resentment  of  the  planter  class.  Price  con- 
ventions during  the  Revolution  were  the  constant  resort 
of  the  States  to,  urge  the  use  of  a  money  they  had  already 
made  a  legal  tender.  Schedules238  of  prices  were  adopted 
in  futile  effort  against  depreciation,  Congress  recommend- 
ing in  1779  that  they  do  not  exceed  20  fold  those  of  1774. 
The  Confederate  Congress  never  enacted  a  law  of  maxi- 
mum prices  for  trade  in  general  though  Virginia  persist- 
ently urged  it. 

In  the  fiscal  resource  of  loans  a  contrast  of  practice  and 
conditions  in  the  two  Treasury  Departments  is  to  be  ob- 
served, for  the  results  were  as  widely  different  as  the  at- 
tendant realities  of  national  triumpfi"  and  defeat.  The  loan 
was  an  early  experiment  of  the  Revolution,  $5,000,000  be- 
ing invited  in  1776.  Loan  office  commissioners  were 
placed  in  each  State  and  fair  returns  secured. 

238  Belles'  Financial  History,  I,  pp.  159,  seq. 


105 

SUCCESS  AND  FAILURE  OF  FOREIGN  LOANS. 

But  when  France  in  1778  agreed  to  pay  the  interest  on 
the  loans  in  specie,  a  guarantee  was  afforded  that  caused 
subscriptions  to  aggregate  $60,000,000  by  1782.  These 
loan  office  certificates  were  not  used  by  Robert  Morris, 
but  the  timely  aid  of  Louis  XVI.  had  begun  the  salvation 
of  the  Treasury.  To  the  18,000,000  livres  of  France  were 
added  the  first  installment  of  1,500,000  gulden  of  the  Dutch 
loan  in  June,  1782,  and  the  financial  crisis  had  been 
passed.239  When  the  paper  money  was  reformed  by  law 
in  1780  and  banished  by  commerce,  a  providential  supply 
of  a  medium  was  furnished  by  specie  from  the  West  In- 
dies and  the  European  loans,  enabling  the  master  financier 
to  bring  stability  out  of  ruin. 

In  the  Confederacy,  commissioners  placed  largely  the 
Fifteen  Million  Loan  of  the  first  year.  The  depositories 
then  served  as  agents  of  the  Treasury,  but  the  loans  went 
slowly,  the  One  Hundred  Million  being  taken  after  two 
years  by  exchanges  for  cotton,  subscriptions  of  the  Pro- 
duce Loan  and  funding  operations.  Other  stocks  sold 
slightly,  for  the  guarantee  was  a  substratum  of  cotton  un- 
der limitations  not  attractive  to  the  public.  The  Erlanger 
loan  was  well  conceived  and  the  risk  of  getting  cotton 
through  the  blockade  the  only  uncertainty.  However,  the 
proceeds  of  $7,500,000  did  not  strengthen  the  financial  sys- 
tem, but  were  applied  to  the  purchase  of  foreign  war  ma- 
terials. The  large  proportion  of  the  stocks  and  certificates 
represent  the  loyal  support  of  the  citizens  in  the  various 
funding  struggles  to  remove  the  incubus  of  Treasury  notes 
that  eventually  overwhelmed  all. 

SKILLFUL  REHABILITATION  vs.  LACK  OF  INITIATIVE. 

There  is  no  common  basis  for  estimate  of  Robert  Morris 
and  C.  G.  Memminger.  The  Treasury  of  the  United  States 

189  Sumner's  Financier  of  the  Revolution,  I,  p.  58. 


io6 


was  under  the  direction  of  a  Board  of  Administration  until 
1781,  when  Mr.  Morris  was  installed  as  financier.  Then 
the  Government  currency  had  disappeared  and  foreign 
specie  was  furnishing  the  standard  of  circulation.  The 
Bank  of  North  America  was  organized  as  an  efficient  aid 
of  the  Treasury,  furnishing  in  loans  five  times  the  sum  in- 
vested. The  commercial  credit  of  Robert  Morris  per- 
sonally counted  for  much,  and  he  employed  every  device  of 
discount  and  bill  kiting  until  the  immediate  national  obli- 
gations were  balanced.  Therefore  his  biographer  can 
say240  that  favorable  bookkeeping  extricated  him,  for  he 
did  well  not  with  reasonable  means,  but  much  with  noth- 
ing. On  the  contrary,  Mr.  Memminger,  having  direction 
of  Confederate  finances  in  the  beginning,  might  have  dic- 
tated a  sound  economic  policy  to  a  Congress  which  later 
would  not  yield  him  leadership.  He  invoked  the  plague 
of  paper  money,  which  he  could  not  remove.  No  real  for- 
eign aid  came  to  his  entanglements,  nor  did  the  Treasury 
hold  practical  commercial  relations  with  the  financial  in- 
stitutions. Resources  depleted,  a  second  tide  of  notes  ris- 
ing, variance  with  the  legislative  body  brought  the  retire- 
ment of  the  Secretary. 

The  expenditures241  of  the  Revolutionary  War  were 
$92,485,693,  of  which  sum  $83,135,000,  specie  value,  went 
out  before  1781.  The  note  issues  may  be  regarded  as  a  tax 
unequally  borne  during  the  years  of  most  active  opera- 
tions. The  expenditures  of  the  Confederacy,  to  October 
I,  1864,  may  be  approximated  on  a  specie  basis  at  $510,- 
000,000,  but  the  burden  of  the  notes  is  evident  in  the  last 
year,  when  the  one  billion  outlay,  on  a  currency  valuation, 
shrinks  to  fifty  million  dollars,  the  average  inflation  being 
twenty  fold. 

240  Sumner's  Financier  of  the  Revolution,  II,  p.  131. 

241  Treasury  Report  of  1/90. 


LOAN  POLICY  OF  NORTH  AND  SOUTH. 

A  more  pertinent  comparison  is  that  of  the  financial 
policies  of  the  North  and  the  South,  parties  to  the  same 
conflict.  The  sections  having  a  common  fiscal  training, 
interesting  analogies  occur  in  the  measures  of  anticipation, 
the  programs,  and  the  readjustments  to  vaster  emergen- 
cies. The  period  produced  a  new  national  conception  of 
taxation,  and  an  extreme  application  of  the  loan  policy  was 
made,  helping  to  the  destruction  of  one  government,  while 
the  same  fate  was  averted  from  the  other  only  by  radical 
remedies  and  the  favorable  fortunes  of  war. 

The  nature  and  form  of  the  various  Treasury  operations 
of  the  North  and  the  South  were  largely  shaped  by  the 
respective  Secretaries  of  the  Departments.  Each  came  to 
the  position  with  a  legal  and  legislative,  rather  than  a  com- 
mercial training.  One  was  led  by  his  Congress  into  a  vig- 
orous policy,  the  other  was  not  able  to  get  his  belated 
recommendations  adopted  in  their  entirety  and  severity. 
There  was  a  common  failure  to  appreciate  the  size  of  the 
war  and  a  tendency  to  employ  temporary  measures.  Both 
Mr.  Chase  and  Mr.  Memminger  looked  to  loans  as  the 
adequate  resource  for  deficit  financiering;  then  after  the 
failure  of  the  policy,  they  desperately  demanded  heavy 
taxation.  The  Federal  Congress  of  July,  1861,  was  asked 
for  an  increase  of  only  $20,000,000  above  the  ordinary  tax, 
while  the  loan  was  fixed  at  $240,000,000.  The  banks  came 
to  the  support  of  the  first  loans  in  each  section  and  then  in 
turn  they  were  driven  to  suspend  specie  payment.  In  the 
North,  this  result  came  from  the  drain242  of  coin  into  the 
government  vaults;  in  the  solidly  solvent  portion  of  the 
South,  it  was243  demanded  in  order  to  give  a  clear  field  for 
the  Treasury  note  circulation. 

242  Belles'  Financial  History,  III,  p.  34. 

248  Ante,  Chapter  I,  sub-head,  "Loyalty  of  the  banks  and  capi- 
talists." 


io8 


NARROW  VISION  OP  THE  SECRETARIES. 

Mr.  Chase  planned  in  1862  to  replace  the  banknote  cir- 
culation of  the  North  with  a  national  currency,  and  his 
modified  program  found  expression  in  the  Banking  Act  of 
Feb.  25,  1863,  which,  however,  required  two  years  before 
being  fully  operative.  In  contrast  with  the  large  use  by  the 
South  of  the  government  issue,  the  North  persisted  in  ac- 
cepting the  money  of  the  private  banks,  these  being  more 
favorably  rated  than  the  greenbacks.  The  first  emergency 
medium  of  the  North,  $50,000,000  of  demand  notes,  non- 
interest  bearing,  was  paid  in  the  fall  of  1861  to  a  very  re- 
luctant244 public.  The  purport  of  the  messages  of  the  two 
Secretaries  to  the  respective  Congresses  after  several 
months  of  the  war  was  the  same.  Mr.  Memminger  af- 
firmed that  note  issues  were  the  chief  revenue  contem- 
plated and  all  measures  were  for  an  emergency  of  limited 
duration.  Likewise,  Mr.  Chase  spoke  with  uncertainty,245 
discussing  government  paper  disparagingly,  yet  debated 
whether  to  have  specie  or  paper  as  the  basis  of  his  system. 

Loans  were  not  being  placed,  so  the  Federal  Congress 
took  the  initiative  Feb.  25,  1862,  resorting  to  notes  with 
the  legal  tender  quality.  Thus  the  law  of  the  North  in- 
duced an  acceptance  which  the  devotion  of  the  South  ac- 
corded without  compulsion.  Within  a  year  the  authoriza- 
tion of  greenbacks  was  $450,000,000,  while  the  note  issue 
of  the  South  for  about  the  same  period  was  $329,000,000. 
When  the  third  appointed  limit  to  irredeemable  money 
was  Breached,  Mr.  Chase  employed  in  1863  interest  bearing 
notes  quite  like  Mr.  Memminger  had  done246  in  1862.  The 
Federal  Treasury  also  secured  a  large  acceptance  of  certifi- 
cates of  indebtedness,  placing  $160,000,000  by  June  30, 
1864,  at  which  period  the  Confederate  Administration  be- 
gan to  urge  in  desperation  this  form  of  temporary  loan. 

244  Hart's  Chase,  p.  223. 

245  Sumner's  American  Currency,  p.  193. 
248  Ante,  pp.  29,  31. 


109 

NORTH  HELPED  BY  LOANS  OTHER  THAN  CURRENCY. 

But  the  radical  distinction  of  these  two  financial  histor- 
ies is  that  the  North  decreased  its  note  issues,  developing 
after  two  years,  auxiliary  revenues  from  bond  sales  and 
taxation.  The  loan  of  $150,000,000  in  1861  consisted  of 
seven  thirty  notes  and  bonds.  But  in  1862  Mr.  Chase  sold 
few  U.  S.  stocks,  because  he  refused  all  offers  below  par, 
just  as  Mr.  Memminger  persisted  in  doing.  However,  the 
loan  of  $900,000,000  in  1863  became  a  popular247  security, 
and  was  floated  by  the  thorough  business  methods  of  Jay 
Cooke.  Later,  when  the  Secretary  managed  a  new  secur- 
ity, his  conditions  of  offer  checked  its  success.  Although 
the  currency  was  increased  in  order  to  promote  the  sale 
of  bonds,  multitudes  of  people  were  productively  employed 
by  the  demands  of  the  war  and  constituted  a  body  of  in- 
vestors, not  similarly  existant  in  the  South.  Mr.  Mem- 
minger's  efforts  to  sell  bonds  were  made  in  1863  and  1864, 
but  the  responses  were  very  meager,  the  public  being 
blamed  for  complete  absorption  in  speculation.  Commer- 
cial institutions  as  agents  rather  than  the  depositories 
might  have  operated  to  better  advantage.  Mr.  Trenholm 
early  in  his  term  had  to  admit248  the  apathy  of  the  planters 
to  all  inducements. 

The  chief  utilization  of  Confederate  bonds  and  securities 
was  in  the  funding  system,  which  had  its  affinity  in  Federal 
theory,  although  the  Northern  practice  of  it  was  not  so 
great  contemporaneously.  The  seven  thirty  notes  of  1861 
could  be  funded  into  eight  per  cent.  U.  S.  Stock  and  the 
certificates  of  deposit,  exchanged  for  notes,  were  employed 
by  Mr.  Chase  from  1862  on.  But  instead  of  forcing  these 
certificates  of  deposit  into  permanent249  loans  as  in  the 
South,  they  were  redeemed  on  one  occasion  to  the  amount 
of  $50,000,000  in  order  to  relieve  the  currency  stringency. 

247  Bolles'  Financial  History,  III,  p.   109. 

248  Letter  Book  "F,"  Sept.  5,  1864. 

249 Ante,  Chapter  IV,  sub-head,  "Clash  of  views." 


no 


THE  SIMILAR  FUNDING  SYSTEMS. 

Two  identical  funding  measures  were  prescribed  about 
the  same  time.  The  Confederate  Act  of  March  23,  1863, 
limited  the  conversion  of  notes  into  seven  per  cent,  stock 
to  August  ist,  while  the  Fe'deral  Act  of  March  3d,  declared 
the  privilege  of  funding  previous  note  issues  would  end 
on  July  ist.  These  legal  tender  notes  continued  to  be  used 
by  the  North  and  other  bonds  being  sold  at  this  period  for 
notes,  the  limitation  was  less  felt  and  later  repealed.  Yet 
the  act  checked  funding  and  is  thought250  to  have  delayed 
the  resumption  of  specie  payment.  The  Southern  Con- 
gress did  not  revoke  its  limitation  of  the  funding  contract, 
but  advanced  to  more  violent  measures  in  the  following 
year.  The  funding  system  which  the  biographer251  con- 
siders a  chief  trumph  of  Mr.  Chase  was  effective  in  absorb- 
ing temporary  loans  largely  in  the  year  of  peace  and  after. 

Another  financial  analogy  is  found  in  the  record  of  tax- 
ation introduced  with  the  same  delay  to  each  section,  but 
developed  with  widely  divergent  results.  The  taxes  of 
1861  of  the  two  governments  were  levied  according  to  the 
schedule  of  the  old  U.  S.  system  and  were  assumed  gener- 
ally by  the  respective  States  of  the  North  and  the  South. 
The  Federal  tax  of  $20,000,000  was  lessened  by  a  fourth 
by  reason  of  apportionment  to  the  seceding  region  and 
slight  returns  were  made  in  either  country  within  a  year. 
In  his  plans  for  1862,  the  Northern  Secretary  apologized 
for  the  amount  of  taxes  named,  although  the  New  York 
Chamber  of  Commerce  called  for  a  sum  three  times  as 

*•*•*•    TAXATION  WITHOUT  AND  WITH  EXEMPTIONS. 

large.  The  first  real  Federal  tax  law  of  July  i,  1862,  laid 
the  foundation  of  the  internal  revenue  system,  besides  as- 
sessing incomes,  occupations  and  transactions.  A  tax 

250  Knox  U.  S.  Notes,  p.  138. 

251  Schucker's  Chase,  p.  407. 


Ill 


commissioner  was  appointed,  but  the  administration252  of 
the  complex  measure  was  inevitably  faulty  and  the  returns 
very  slow,  $37,000,000  being  received  in  ten  months  of 
1863.  Mr.  Chase  awaked  to  the  need  of  taxation  and 
urged  in  December,  1863,  an  excessive  levy  to  offset  the 
vast  indebtedness.  The  third  measure  of  the  North  was 
the  act  of  June  30,  1864,  which  doubled  the  previous  as- 
sessment and  caused  the  receipts  of  that  year  to  double 
those  of  the  preceding. 

No  imperative  initiative  to  taxation  having  been  taken 
by  Mr.  Memminger  in  1862,  the  Southern  Congress  was 
excused  in  postponing  the  crude  and  unpopular  measure 
considered.  •  But  this  Secretary  also  changed  the  spirit  of 
his  recommendations  and,  backed  by  popular  clamor,253  de- 
manded a  comprehensive  tax  system,  which  was  answered 
after  a  fashion  by  the  legislation  of  April  24,  1863. 

Mr.  Memminger  was  thence  to  his  retirement  in  conflict 
with  Congress  urging  a  more  efficient  measure  through  a 
tax  on  property,  and  correction  of  the  method  of  rebates 
and  valuation.  Besides,  with  all  vigilant  collection,  the 
laws  were  highly  susceptible  to  evasion,  so  that  Secretary 
Trenholm  had  to  say254  that  the  taxes  of  1864  were  prac- 
tically nothing.  To  the  contrary,  in  the  North  there  was 
a  large  increase,  the  record  of  revenue,  internal  and  cus- 
toms, being  $112,000,000  in  1863,  $264,000,000  in  1864, 
$333>o°0>000  in  l865- 

A  VAST  FISCAL  AND  ECONOMIC  INEQUALITY. 

The  disastrous  year  in  Federal  financial  history  was 
that  of  1864,  when  the  depreciation  of  greenbacks  fell 
from  155  in  January  to  270  in  July.  Mr.  Chase  had  poor 
results  in  floating  a  new  loan  and  political  reasons  arising, 

!52  Howe's  Internal  Revenue  System,  p.  60. 

258  Ante,  Chapter  III,  sub-head,  "Tax  act  of  April,  1863.*' 

284  To  T.  H.  Ivey,  Lynchburg,  Va.,  Jan.  18,  1865,  Letter  Book 


112 


he  resigned.  The  two  Treasury  Departments  had  new 
Secretaries  at  the  same  time,  and  the  Richmond  Enquirer 
of  July  22,  1864,  said  that  Trenholm  and  Fessenden  start 
under  equal  circumstances,  with  enormous  debts,  immense 
issue  of  paper  money,  heavy  taxes,  no  real  money  and  little 
credit. 

However,  taxes  were  coming  into  the  Northern  Treas- 
ury at  almost  a  million  dollars  a  day,  military  successes 
improved  its  credit,  and  Mr.  Fessenden  succeeded  in  mak- 
ing various  loans  which  culminated  in  the  sale  of  $600,- 
000,000  of  the  Act  of  March  3,  1865,  in  seven  thirty  notes. 
Mr.  Trenholm  placed  bonds  better  than  his  predecessor, 
but  the  excessive  depreciation  of  the  period  multiplied  the 
ratio  of  expenditures,  and  though  the  form  of  tax  gather- 
ing in  the  uninvaded  districts  was  continued  to  February, 
r865,  the  inevitable  financial  ruin  was  consummated. 

The  public  debt  of  the  North  on  March  31,  1865,  was 
$2,366,955,077,  of  which  there  was  funded  $1,100,361,241. 
The  last  Confederate  showing  of  Secretary  Trenholm  up 
to  Sept.  30,  1864,  made  a  debt  of  $1,126,381,095,  of  which 
was  approximately  funded  $738,340,090.  Yet  in  this  state- 
ment $649,000,000  of  Treasury  notes  in  addition  were  re- 
pudiated, being  called  in  for  cancellation.  The  gross  ex- 
penditures of  the  North  from  June  30,  1861  to  June  30, 
1865,  were  $4,655,000  ooo.  If  the  value  of  the  tax  in  kind 
of  the  South,  the  unpresented  claims,  and  the  various  do- 
nations were  counted,  it  is  probable  that  the  Confederate 
outlay  would  have  reached  $3,000,000,000,  paper  valuation. 
Of  the  $3,264,000,000,  current  expenditures  of  the  North, 
it  has  been  estimated255  that  depreciated  currency  con- 
tributed $600,000,000.  If  an  average  annual  discount  of 
15%  in  1 86 1,  200%  in  1862,  500%  for  nine  months  in  1863, 
and  2,000%  in  1864  to  September  3Oth  is  allowed,  the  in- 
crease of  Confederate  expenditure  by  reason  of  paper 

265  Journal  of  Political  Economy,  March,  1897. 


money  is  $1,590,000,000.  This  currency  by  no  specious 
reasoning  can  be  considered  a  tax  as  was  the  wont  in 
Revolutionary  times,  for  it  more  than  doubled  the  cost  of 
all  outlay.  It  produced  irritation  and  unreality  which  ended 
in  a  public  sense  of  helpless  entanglement.  It  was  thus  a 
forerunner  of  the  military  vanquishment.  The  operation 
of  relentless  economic  law  was  in  the  main  vaguely  com- 
prehended, but  not  a  few  were  convinced  that  somewhere 
fatal  errors  had  been  made  by  the  authorities. 


114 


CHAPTER  VII.— LIMITATIONS  OF  THE  TREAS- 
URY. 

Political  differences  in  the  interpretation  of  the  Con- 
stitution of  the  Republic  led  to  the  Civil  War,  frut  other 
differences,  economic  and  social,  distinguished  the  sec- 
tions. As  parties  to  the  conflict,  twenty-two  States  with 
22,000,000  population  were  arrayed  against  eleven  States 
with  9,000,000,  of  whom  3,500,000  were  slaves.  The  wealth 
of  the  contestants  was  quoted256  in  the  valuation  by  coun- 
ties of  real  and  personal  property  at  $12,230,000,000 
against  $6,740,000,000,  and  in  the  rating  of  improved  land 
for  agriculture  at  $4,865,000,000  against  $1,780,000,000. 
In  the  assessed  value  of  property  per  capita  nine  of  the 
Southern  States  were  ranked  between  third  and  sixteenth 
places  in  the  total  of  thirty-three. 

In  the  various  products  of  the  field,  the  showing  of  the 
North  and  South  for  1860  was  556,169,962  bu.  of  corn 
against  282,626,778;  141,663,098  bu.  of  wheat  against  31,- 
441,826;  13,119,169  tons  of  hay  against  709,997;  3,560,032 
bu.  of  peas  and  beans  against  11,501,936.  The  valuation  of 
the  live  stock  was  $707,550,000  against  $381,778,000.  The 
staples  of  the  South  were  represented  in  5,196,000  bales  of 
cotton,  357,500,000  pounds  of  tobacco,  302,000,000  pounds 
of  sugar  and  187,000,000  pounds  of  rice.  In  the  total  mar- 
ketable worth  of  the  agricultural  products  of  the  sections 
there  was  not  the  same  disparity  shown  as  in  the  relative 
yield  of  some  of  the  competing  products. 

INDUSTRIAL  AND  MONETARY  WEAKNESS. 

But  in  relative  strength  of  the  manufacturing,  mineral 
and  commercial  resources,  the  South  had  excessive  limita- 
tions. The  capital  invested  in  manufacturing  in  the  North 

288  Eighth  Census,  U.  S. 


H5 

was  $993,881,130,  having  a  product  worth  $1,700,330,395, 
while  in  the  South,  the  sum  was  only  one-tenth  of  this,  $95,- 
974,585,  with  an  output  of  $155,531,281.  The  volume  of 
the  iron  industries  was  in  the  proportion  of  $48,346,803  to 
$3,412,022,  and  the  amounts  of  coal  mined  were  13,648,- 
182  and  649,760  tons  respectively.  The  lengths  of  the  rail- 
roads of  the  sections  were  19,022  and  9,897  miles.  In  the 
financial  statistics  the  odds  were  heavy  against  the  Con- 
federacy, which  possessed  only  221  banking  institutions 
with  a  capital  of  $92,048,159,  in  comparison  with  1,421 
banks  of  its  opponent,  capitalized  at  $329,841,836. 

The  ratio  of  capital  and  deposits  in  the  South  was  small 
in  proportion  to  the  other  forms  of  wealth  of  the  section 
itself;  besides,  the  deposits  of  $47,204,111  equaled  barely 
a  fifth  of  the  money  so  held  in  the  North.  There  was  a 
scarcity  of  specie  from  the  first,  the  total  return  being  $27,- 
200,000.  Of  the  specie,  the  banks  of  New  Orleans  held 
two-fifths,  as  well  as  two-fifths  of  the  aggregate  deposits. 
This  city  had  been  one  of  the  soundest  commercial  centers 
in  the  United  States,  for  in  the  panic  of  1857  but  four  of  its 
nine  banks  suspended  specie  payment  for  a  brief  time. 
The  loss  of  this  financial  base  was  a  severe  blow  to  the 
Confederate  Treasury,  especially  as  it  had  recently  aided 
in  the  first  payment  of  government  interest  in  coin. 

THE  VAGUE  SECURITY  FOR  PAPER  ISSUES. 

There  was  a  common  expression  by  public  men 
throughout  the  most  of  the  war  that  the  wealth  of  the 
land  was  to  be  measured  simply  by  the  money  paid  for  its 
products  by  other  countries.  Conditions  had  changed  and 
the  economic  isolation  of  the  period  was  more  severe  than 
before  the  war,  when  by  deliberate  choice  the  South  was 
not  industrially  self-sufficient.  The  blockade  of  the  sea 
was  effective  to  a  degree  that  fatally  weakened  the  section. 
Back  of  the  Confederate  currency  and  loans  were  not  vast 
quantities  of  cotton  and  tobacco.  Of  the  3,849,000  bales  of 


n6 

the  cotton  of  i86o-i,257  all  virtually  had  been  exported  be- 
fore a  paper  dollar  was  voted  by  Congress.  Of  the  esti- 
mated crop  of  2,000,000  bales  in  1862,  about  one-fifth  was 
presumably  subscribed  to  the  Produce  Loan,  yet  actual 
collections  and  direct  purchases  realized  in  three  years 
only  430,000  bales,  of  which  300,000  were  pledged  against 
the  Erlanger  loan.  There  was  for  a  financial  system  an 
undoubted  foundation  of  material  value,  to  the  extent  of 
the  fruitful  return  of  an  agricultural  economy,  in  the 
form  of  assessments  on  the  fundamental  capital  of  the 
nation.  Yet  there  were  not  such  industries  created  by 
the  war  demands  as  in  the  North,  which  by  a  reflex  power 
could  yield  their  share  of  the  enlarged  support  of  the  gov- 
ernment. 

UNACQUAINTED  WITH  VALUE  OF  TAXATION. 

The  subject  of  finance  had  been  little  regarded  by 
Southern  statesmen  on  account  of  their  concern  for  politi- 
cal and  constitutional  questions.  There  was  no  adequate 
training  by  any  previous  acquaintance  with  financial  oper- 
ations of  the  government  at  Washington  for  the  public 
men  of  the  Confederacy  who  had  to  direct  the  vast  prepar- 
ations and  expenditures  of  the  four  years.  Heavy  taxa- 
tion was  then  an  unknown  experience  to  an  American. 
The  several  messages  of  President  Davis  devoted  a  rela- 
tively small  portion  of  space  to  the  discussion  of  fiscal  af- 
fairs. 

Again,  the  several  States  competed  with  the  Confed- 
eracy in.  demanding  of  the  citizens  subscriptions  to  the  vari- 
ous loans  for  their  individual  purposes.  On  the  proposed 
purchase  of  cotton,  the  Richmond  Examiner  had258  said  it 
would  be  a  vast  Federal  stretch  of  power.  Any  opposi- 
tion, however,  to  the  national  right  of  taxation  was  slight, 
except  in  the  case  of  the  tax  in  kind,  which  received  bitter 


257  Capers's  Memminger,   p.   356. 

258  Oct.  12,  1861. 


condemnation  from  several  quarters.  Georgia  particularly 
through  its  Governor,  Joseph  E  Brown,  clashed  with  the 
Treasury  Department  in  its  revenue  and  currency  meas- 
ures. South  Carolina  had  independently  laid  a  prohibi- 
tion on  exports,  but  removed259  it.  The  States  being  en- 
gaged in  commerce  on  their  official  account  resented  the 
trade  regulations  of  1864,  pre-empting  half  of  the  ship- 
ments for  national  purposes,  and  at  the  very  last  they  re- 
gained their  privilege.  In  the  main,  the  States  displayed 
a  laudable  rivalry  in  meeting  the  formal  demands  of  the 
Administration. 

CONFIDENCE  AFFECTING  CREDIT. 

The  credit  of  the  government  obligations  became  notice- 
ably impaired  in  1862,  though  the  issue  of  interest  bearing 
notes  made  the  depreciation  stationary  for  the  summer. 
Later,  it  was  affirmed280  that  distrust  arose  not  concerning 
the  Confederacy,  but  from  the  superabundance  of  cur- 
rency, for  all  knew  that  tenure  to  any  Southern  property 
at  all  depended  upon  the  maintenance  of  the  nation.  Yet 
in  those  days  the  opinion261  was  uttered  and  thought  to 
be  gaining  credence  in  Richmond  that  the  cause  was  lost. 
The  failure  to  induce  the  States  to  guarantee  a  new  form 
of  bonds  was  a  blow  to  confidence  and  the  funding  legisla- 
tion quickened  the  decline  in  quotations  of  currency  val- 
ues, so  that  Mr.  Memminger  in  July,  1863,  spoke  of  one 
more  year  being  assured  to  the  Treasury,  provided  current 
measures  were  executed.  But  the  fortune  of  arms  was  the 
supreme  arbiter  of  credit  and  after  the  disasters  of  July,  it 
was  not  long  until  the  national  finances  were  hopelessly 
shattered,  the  currency  manipulations  completing  the  con- 
dition. 

If  unfavorable  tide  of  battle  was  reflected  in  the  esti- 

269  Apr.  21,  1862. 

!8°  Richmond  Examiner,  Oct.  22,  1862. 

M1DeBow's  Diary.    DeBow's  Review,  Vol.  Ill,  p.  549,  N.  S. 


n8 


mates  of  the  nation's  financial  integrity,  the  military  re- 
sources were  in  turn  impaired  by  the  inefficiency  of  the 
Treasury  provisions.  The  Quartermaster  General261b  de- 
clared to  the  Secretary  of  War  that  since  the  first  of  1864 
credit  had  been  injured  by  the  lack  of  finances.  More  es- 
pecially, the  industrial  limitations  of  the  South  necessitated 
desperate  efforts262  to  furnish  in  part  munitions  and  arms, 
which  the  Administration  endeavored  to  supplement  from 
abroad. 

LOANS  CONFINED  LARGELY  TO  CURRENCY. 

The  foremost  and  fatal  limitation  of  the  Confederate 
Treasury  was  the  introduction  and  maintenance  of  the 
loan  policy.  This  plan  of  financiering  was  due  to  a  lack 
of  political  foresight  and  the  arrangements  for  revenues 
contemplated  an  emergency  system  solely.  The  theory  of 
credit  was  blindly  optimistic  and  deprecated  an  appeal  to 
the  sources  of  income,  best  available  at  the  beginning. 
The  resort  to  loans  was  the  easiest  method  of  raising 
funds,  but  it  was  the  most  unfortunate  in  the  instance  of  a 
country  so  completely  isolated  and  inevitably  compelled 
to  devote  all  in  sacrifice  to  the  cause.  It  was  an  effort  to 
project  payment  into  the  future,  which  if  met  would  have 
been  vastly  more  costly  than  in  the  present. 

When  this  loan  took  chiefly  the  form  of  borrowing  the 
circulating  medium  of  the  people  and  additions  continued 
to  be  made  to  the  currency  without  any  regard  to  the 
needs  of  exchange,  there  were  possibilities  of  failure  that 
were  appalling.  There  were  few  enterprises  open  for  em- 
ployment of  the  superabundant  notes,  and  the  public 

261t>  Southern  Historical  Papers,  Vol.  n,  p.  86. 

262  A  remarkable  development  of  material  resources  under  stress 
of  war  was  that  of  the  Ordinance  Bureau  under  Gen.  Josiah  Gor- 
gas.  He  created  powder  mills  at  Augusta,  armories  at  Richmond, 
Rome,  Fayetteville  and  Selma  and  various  arsenals,  mining,  foun- 
deries  and  nitre  manufacture  were  conducted,  and  by  1863  a  large 
share  of  the  ordinary  equipments  were  furnished. — Gorgas' 
Monograph,  Southern  Historical  Society,  Vol.  XII. 


n9 

turned  to  speculation  as  an  outlet,  creating  fictitious  val- 
ues within  a  circumscribed  trade.  The  first  sale  of  bonds 
was  thought  to  have  exhausted  disengaged  capital  and 
this  form  of  loan  was  not  actively  pushed  again  until  the 
full  flood  of  paper  money  yielded  unmistakable  signs  of 
wreckage  and  commercial  disaster.  Then  with  the  rates 
of  depreciation  prevalent,  the  bonds  were  not  inviting  in- 
vestments; compulsory  funding  also  operated  as  a  deterrent 
to  direct  sales  in  the  final  years.  The  Produce  Loan  in  its 
original  plan  was  a  failure,  because  it  required  the  sales 
of  products  to  be  exchanged  for  bonds.  There  was  no 
market,  so  the  subscriptions  of  cotton  had  to  be  taken 
direct  for  the  securities  and  the  government  gained  by 
purchase  the  staple  it  had  refused  in  1861  to  handle. 

LANDED  INTERESTS  PREVENT  TAXATION. 

Several  causes  contributed  to  the  failure  tQ  employ  tax- 
ation extensively  as  a  source  of  revenue.  There  was  ex- 
perimental ignorance  of  its  real  importance  as  the  founda- 
tion of  a  system  of  deficit  financiering,  and  it  was  not  un- 
equivocally demanded  by  those  in  authority.  Congress 
lacked  the  courage  to  place  the  definite  burden  on  its  con- 
stituency. The  constitutional  objection  served  as  a  pre- 
text of  postponement,  for  in  the  provisional  instrument  of 
government  there  was  no  apparent  limitation.  The  suc- 
cessive tax  measures  show  a  disinclination  to  make  a  com- 
prehensive, rigorous  requisition  of  the  people.  The  first 
enlarged  taxing  spared  real  property  and  fell  on  incomes, 
occupations  and  sales.  The  greatest  hindrance  to  an  ade- 
quate measure  was  the  agricultural  class,  which  in  the 
amendments  of  1864  inserted  the  conditions  which  nulli- 
fied the  value  of  the  direct  levy  by  the  rebates  for  tax  in 
kind  and  for  income,  in  addition263  to  the  discriminating 

263  Ante,  Chapter  III,  sub-head,  "Criticisms  and  defects." 


I2O 


valuation  in  favor  of  the  land.  At  the  same  time,  the  banks 
and  the  merchants  were  heavily  assessed,  but  under  such 
conditions  that  many  of  the  latter  class  practiced  evasion. 
In  the  final  receipts  of  the  bureau,  the  cities  and  towns  are 
exclusively  the  contributors.  When  revenues  were  finally 
realized  in  1863-4  directly  from  the  substance  of  the  coun- 
try, the  financial  status  of  the  nation  was  so  impaired  that 
the  taxes  had  in  specie  a  worth  of  six,  then  four  cents  to 
the  dollar  in  paper. 

THE  LEGISLATIVE  FAILURE  OF  THE  'SECOND  YEAR. 

The  opportune  time  for  taxation  in  the  Confederacy  was 
in  1862.  Yet  with  the  message  of  President  Davis  affirm- 
ing the  high  credit  of  the  nation,  addressed  to  Congress 
in  February,  it  would  have  been  difficult  to  bring  that  body 
to  a  revenue  enactment.  However,  when  the  proposition 
was  postponed  in  October,  depreciation  was  pronounced 
and  increasing,  a  situation  certain  to  have  been  modified 
by  resolute  action  six  months  earlier.  Kven  a  tax  or- 
dered at  the  later  date  would  have  brought  a  degree  of  re- 
lief before  the  untoward  influence  of  the  military  reverses 
of  1863  was  felt.  In  the  North,  the  readjustment  of  indus- 
try counseled  a  late  resort  to  taxation;  in  the  South,  the 
first  and  the  second  years  could  have  been  used  most 
efficaciously.  The  loyalty  of  the  people  would  have  re- 
sponded to  a  fearless,  positive  demand  and  the  cost  to  the 
people  would  have  been  no  more  than  actually  borne  in 
the  latter  tax  in  kind.  The  tax  in  kind  was  the  device  of 
a  dire  emergency,  but  it  required  a  degree  of  supervision 
that  was  scarcely  to  be  furnished  and  the  chance  esti- 
mate 264  of  the  realization  of  products  worth  $40,000,000 
out  of  a  contribution  of  $130,000,000  indicates  its  expen- 
siveness. 

264  Stephens'  War  Between  the  States,  Vol.  II,  569. 


121 


THE  CENSURE  OF  SECRETARY  MEMMINGER. 

Upon  the  resignation  of  Secretary  Memminger  the  Rich- 
mond Enquirer,265  the  Administration  organ,  said  Con- 
gress had  produced  the  causes  of  the  financial  failure  and 
the  recommendations  of  the  Treasury  Department  had 
never  been  adopted,  so  it  was  not  responsible  for  the  re- 
sults. The  variance  of  the  legislative  body  and  the  Secre- 
tary had  grown  intense,  but  in  earlier  years  the  relations 
had  been  more  harmonious.  Mr.  Memminger  certainly 
is  responsible  for  the  failure  to  present  a  large,  compre- 
hensive plan  of  national  finance  in  his  recommendations 
of  the  first  year.  His  estimates  were  small  in  comparison 
with  the  needs,  and  his  anticipations  of  foreign  aid  held 
him  from  the  large  action  that  would  have  brought  future 
security.  The  President  seems  to  have  seconded  the  suc- 
cessive suggestions  of  his  cabinet  officer  and  originated  no 
solution  of  later  monetary  difficulties.  In  the  crucial  year 
of  1863  he  did  not  yield  to  an  appeal  to  call  Congress  in 
special  session,  while  market  valuations  were  ruinously  ad- 
vancing from  May  to  December. 

After  the  nation  was  financially  involved,  Congress 
failed  to  do  its  duty  and  the  consideration  of  revenue 
measures  was  always  postponed  to  the  very  close  of  the 
sessions.  In  the  main  the  recommendations  of  the  Treas- 
ury Department  were  carried  out,  Congress  being  de- 
terred by  its  influence  from  the  purchasing  of  the  cotton 
crop,  and  from  making  a  legal  tender  of  the  paper  money. 
The  Houses  adopted  the  earlier  funding  suggestions,  but 
it  was  the  agricultural  influences  that  finally  brought  the 
rupture  in  the  contest  over  heavy  general  taxation. 

LATE  ECONOMIC  WISDOM  AND  HELPLESSNESS. 

Mr.  Memminger  must  be  commended  for  his  late  but 
courageous  fight  to  establish  adequate  taxes,  but  his  treat- 

285  June  20,  1864. 


122 


ment  of  the  note  redundancy  proved  his  helplessness  to 
avert  its  evils.  He  had  in  the  beginning  sounded  the  dan- 
gers of  over  issue,  yet  had  gone  the  full  length,  and  at  the 
end  with  a  new  tenor  emerging,  he  urged  that  legislative 
fiat  set  a  limit  to  the  amount.  It  was  thought  that  he  did 
not  have  proper  conception  of  the  sums  he  handled  and  it 
was  told266  as  a  joke  in  Congress,  that  in  speaking  of  the 
debt  he  had  said  it  was  eight  thousand  million  or  eight 
hundred  million  dollars,  not  being  certain  which.  He  had 
a  firm  faith  in  his  funding  devices  and  believed  that  a 
change  of  percentage  could  call  in  large  sums  of  notes  at  a 
time  when  all  values  were  paralyzed.  His  last  large  form 
of  bonds  had  as  a  chief  inducement  that  they  were  non- 
taxable. 

It  was  a  remedy  of  desperation  to  propose  the  retire- 
ment of  all  the  notes  in  1864,  and  it  was  proclaimed  as 
though  values  would  thereby  be  restored.  But  previous 
changes  of  the  loan  contracts  with  the  public  had  prepared 
the  Secretary  for  a  sweeping  measure.  Had  Congress 
consented  the  result  in  the  end  would  have  been  little 
changed.  Faith  was  already  largely  shaken  and  the  grad- 
ual retirement  of  the  notes  did  not  lessen  the  general  dis- 
trust. 

The  North  by  paying  its  interest  faithfully  in  specie  pre- 
served at  the  worst  a  measure  of  confidence.  The  Conti- 
nental finances  were  conducted  with  foreign  coin  after 
the  paper  money  was  repudiated.  But  there  was  no  coin 
available  in  the  South  to  furnish  a  basis  for  a  new  venture, 
and  the  taxation  ordered  for  the  year  was  payable  in  the 
certificates  issued  for  the  notes,  being  funded  under  pen- 
alty. 

No  CONTRIBUTION  TO  PAPER  MONEY  HISTORY. 
The  persistent  practice  of  the  Treasury  then  was  to  rely 
upon  the  issue  of  government  paper  to  meet  national  ex- 

266  DeBow's  Review,  Vol.  IV,  p.  531. 


I23 


penditure,  and  the  history  of  paper  money  has  been  in 
no  way  altered  by  the  experiment  of  the  Confederacy. 
The  influence  was  disastrous  upon  all  the  activities  of  the 
government  and  of  the  land.  It  induced  speculation,  which 
corrupted  business  morality.  In  the  excessive  redundancy 
all  values  were  permanently  distorted.  Industries  were 
increasingly  crippled,  transportation  companies  were  una- 
ble to  make  repairs,  farmers  evaded  sales  under  impress- 
ment, and  the  products  of  the  country  were  decreased. 
The  Confederacy  had  been  progressively  prostrated.  The 
resources  for  the  army  had  all  but  failed.  The  money  ma- 
chine was  operated  until  it  fell  before  the  same  military 
might  which  was  bringing  an  end  at  the  capital.  And  the 
soldiers,  who  had  borne  the  brunt  at  the  last  received  not 
the  discredited  money  of  the  nation,  but  the  coin  which 
had  come  from  its  hiding  places  at  the  final  legislative  be- 
hest. 


Receipts. 


Appendix— i. 


Bonds. 

Call  Cer- 
tificates. 

Notes. 

Taxes. 

Customs. 

Bank 
Loan. 

1862. 

Feb.  18,  1862  to 
Jan.  i,  1863. 
Jan.  i,  1863  to 
Oct.  i,  1863. 
Oct.  i,  1863  to 
Oct.  i,  1864. 

42,773,572 
154,840,600 
312,404,900 

$59,742,796 
23,475,100 
61,128.660 

329,294,885 
391,623,530 
543,264,878 

$16,664,513 
4,128,988 
101,701,038 

668,566 
942,900 
518,750 

2,539,799 

Total,    .  . 

541,171,732 

144,346,556 

i,  359,973  ,543 

122,494,539 

3,401,089 

12,353,344 

Seques- 
tration. 

Patent 
Fund. 

Repay- 
ments. 

Miscella- 
neous. 

Tax  on 
Notes. 

Total. 

1861-2         .  .  . 

1862-3, 

Jj7   Q2O 

j-i  86s  8si 

1863-; 

$1,862,500 

IO,794 

24.6^8  428 

1863-4  

4,539,490 

26,957 

62,891,596 

6,964,383 

$14.440,567 

1,106,584831 

Total,    .  . 

$6401,990 

$51,671 

$91,395,875 

10,278,866 

$14,440,567 

$2,305,014,431 

124 


Bonds. 


Appendix — 2. 


Flight  per 
cent. 

Seven  per 
cent. 

Six  per 
cent. 

Four  per 
cent. 

Cotton 
Certificates 

Non-tax- 
able 6  p.c. 

Feby.  186;- 
1862. 
Feby.  1862- 
1863. 
Jan.  —  Oct 

$31,152,660 
42,773,572 
107  292  900 

J?3  737  6so 

1863. 
Oct.  1863- 
1864. 

2,422,450 

2,364,000 

14,206,400 

$263,394,050 

8,975,000 

$19,303,900 

Total.  . 

$183,641,582 

$41,101,650 

$21,016.450 

$263,394,050 

$10.975,000 

$19,303,900 

Certificates. 


Six  per 
cent  call. 

Five  per 
cent  call. 

Four  per 
cent  call. 

Certificates 
Indebtedness 

Total. 

1861-1862             .  .  . 

1862-1863      

102  516  368 

!863-                 

1863-4,  

38  812  500 

22  316  160 

Jl  7jg  IOO 

-272   C-23,   560 

Total,  

$59  742  79^ 

$61  815  400 

$22  798  360 

$1  739  JOG 

$685  518  288 

Expenditures. 


Appendix— 3. 


War. 

Navy. 

Civil. 

Public 
Debt. 

Total. 

Feby.  18,  1861-1862, 
Feby.  18,  i862-Jan. 
1,1863. 
Jan.  i,  i863-Oct.  i, 
1863. 
Oct.   i,  i863-Oct.  i, 
1864. 

$152,844,430 
341,011,754 

377,988,244 
484,939,816 

$7,600,485 
20,599,283 

38,437,661 
26,408,525 

$5,045,660 
13,673,376 

11,629,278 
16,038,973 

$41,727,320 
91,256,739 
470,607,163 

$165,490,575. 
416,971,735 

510,311,925 

997,994,472 

Total  

$i  356  784  244 

$q^  COS  QS4 

$46  387  287 

«5o"?  SQl  222 

$2  099  768  707 

Appendix — 4, 

DEPRECIATION  OF  TREASURY  NOTES  RATED  IN  $1.00  OF 

Goux 

1861 — August,  1.05;  October,  i.io;  Nov.,  1.15-1.17; 
Dec.,  1.18-1.20. 

1862 — Jan.,  1.18-1,22;  Feb.,  1.25-1.26;  Mch.,  1.28-1.30; 
Apr.,  1.38-1.40;  May,  1.50;  August,  1.50;  Sept.,  1.75;  Oct., 
2.00;  Nov.,  2.50;  Dec.,  3.00. 


125 

1863— Jan.,  3-io ;  Feb.,  3.33;  Mch.,  4.20;  Apr.,  5.00; 
May,  6.00;  June,  7.50;  July,  9.00;  Aug.,  12.00;  Sept.,  12.50; 
Oct.,  14.00;  Nov.,  15.00;  Dec.,  19.00. 

1864 — Jan.,  21.00;  Feb.,  23.00;  Mch.,  25.00;  Apr.,  21.00; 
May,  19.00;  June,  18.00;  July,  20.00;  Aug.,  22.00;  Sept., 
23.00;  Oct.,  26.00;  Nov.,  27-33.00;  Dec.,  34-42.00. 

1865— Jan.,  45-50.00;  Feb.,  50-60.00;  Mch.,  60.00;  Apr., 
100.00. 

Appendix— 5. 

BIBLIOGRAPHY. 

Appleton's  Annual  Encyclopedia,  1861,  2,  3,  4,  5. 

Bigelow,  Jno. — France  and  the  Confederate  Navy. 

Bolles,  A.  S.— Financial  History  of  the  United  States, 
I,  III. 

Bulloch,  J.  D.— The  Secret  Service  of  the  Confederate 
States  in  Europe. 

Capers,  H.  D. — Life  and  Times  of  C.  G.  Memminger. 

Century  Magazine,  LJII.,  Feb.,  1897. 

Correspondence  of  the  Confederate  Treasury  Depart- 
ment, now  kept  in  the  U.  S.  Treasury  at  Washington,  D,  C. 

Currency  of  the  Confederate  States  of  America,  com- 
piled by  Wm.  Lee,  M.  D. 

Davis,  Jefferson — Rise  and  Fall  of  the  Confederacy. 

DeBow's  Review,  II,  IV,  V,  (New  Series). 

Documents  of  the  Confederate  Treasury  Department, 
now  kept  in  the  "Rebel  Archives"  of  the  War  Depart- 
ment, Washington,  D.  C. 

Eighth  Census  U.  S. 

Hart,  A.  B.— Life  of  S.  P.  Chase. 

Howe,  F.  C. — Taxation  in.  the  U.  S.  under  Internal 
Revenue. 

Jones,  J.  W.— Rebel  War  Clerk's  Diary. 

Journal  of  Political  Economy,  Mch.,  1897. 

Knox,  J.  J.— U.  S.  Notes. 

Newspapers — Augusta  Chronicle,  Charleston  Courier, 
Montgomery  Mail,  Richmond  Dispatch, 


126 

Enquirer,     Examiner    and     Whig,     and 
Savannah  News  as  preserved  in  the  files 
of  the  "Rebel  Archives"  at  Washington. 
Phillips — Continental  Paper  Money. 
Pollard,  E.  A.— The  Lost  Cause. 

The  First,  Second,  Third  and  Fourth 
Years  of  the  War. 

Records  and  Correspondence  of  the  Confederate  War 
Tax  Bureau. 

Reports  of  the  Commission  of  Taxes. 
Reports  of  C.  G.  Memminger  and  G.  A.  Trenholm,  Sec- 
retaries of  the  Confederate  Treasury. 

Scharf,  J.  T.— History  of  the  Confederate  States  Navy. 
Schuckers,  J.  W. — Life  and  Public  Services  of  Salmon 
P.  Chase. 

Schwab,  J.  C.— The  Finances  of  the  Confederacy,  Pol.. 

Science  Quarterly,  VIII. 
The  Confederate  Foreign  Loan.    Yale 

Review,  I. 
The     Financier    of     the     Confederate 

States.    Yale  Review,  II. 

Senate  and  House  Journals  of  the  Confederate  States, 
Secret  and  Open  Sessions. 

Southern  Historical  Society  Papers,  II,IX,  XII. 
Statutes  of  the  Provisional,  the  First  and  the  Second 
Congresses  of  the  Confederate  States. 
Stephens,  Alexander  H. — War  between  the  States. 
Sumner,  W.  G. — American  Currency. 

The  Financier  and  the  Finances  of  the 

American  Revolution. 

Tariff  and  Tax  Laws  of  the  Confederate  States. 
(Concluded.) 


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